Regional Oral History Office University of California The Bancroft Library Berkeley, California

RICHARD BARNABY

KAISER PERMANENTE MEDICAL CARE ORAL HISTORY PROJECT II

YEAR 2 THEME: KAISER PERMANENTE “CORE VALUES”

Interview conducted by Martin Meeker

in 2008

Copyright © 2008 by The Regents of the University of California

Since 1954 the Regional Oral History Office has been interviewing leading participants in or well-placed witnesses to major events in the development of Northern California, the West, and the nation. Oral History is a method of collecting historical information through tape-recorded interviews between a narrator with firsthand knowledge of historically significant events and a well-informed interviewer, with the goal of preserving substantive additions to the historical record. The tape recording is transcribed, lightly edited for continuity and clarity, and reviewed by the interviewee. The corrected manuscript is bound with photographs Illustrative materials and placed in The Bancroft Library at the University of California, Berkeley, In other research collections for scholarly use. Because it is primary material, oral history is not intended to present the final, verified, or complete narrative of events. It is a spoken account, offered by the interviewee in response to questioning, and as such it is reflective, partisan, deeply involved, Irreplaceable.

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All uses of this manuscript are covered by a legal agreement between The Regents of the University of California and Richard Barnaby. The manuscript is thereby made available for research purposes. All literary rights in the manuscript, including the right to publish, are reserved to The Bancroft Library of the University of California, Berkeley. No part of the manuscript may be quoted for publication without the written permission of the Director of The Bancroft Library of the University of California, Berkeley.

Requests for permission to quote for publication should be addressed to the Regional Oral History Office, The Bancroft Library, Mail Code 6000, University of California, Berkeley, 94720-6000, and should include identification of the specific passages to be quoted, anticipated use of the passages, Identification of the user.

It is recommended that this oral history be cited as follows:

Richard Barnaby, “Kaiser Permanente Medical Care Oral History Project II—Year 2. Theme: Kaiser Permanente ‘Core Values’” conducted by Martin Meeker, 2008, Regional Oral History Office, The Bancroft Library, University of California, Berkeley, 2008.

Copy No. ____

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Discursive Table of Contents—Richard Barnaby

Interview #1: 05-07-2008

Audio File 1……………………………………………………………………………1

Personal and family background—military service—migration to California—hired by Kaiser Permanente as a clerk—worked for Southern California Permanente Services, Inc.—recollections of receiving health care through Kaiser Permanente in the 1960s—climbing the corporate ladder at Kaiser Permanente—innovations in business technology—movement from systems operations to accounting—earning a master’s degree in management—creating budgets and other forecasting tools for the health plan—medical economics and KP’s model of care delivery—economic contextual issues—membership rate increases: health plan vs. medical groups—Physician Compensation Committee—personality conflicts and conflicts between health plan and medical groups

Audio File 2…………………………………………………………………………18

Differences in leadership and operating principles in the health plan and medical groups—transfer to the Northwest Region to work as regional controller—differences between Southern California and Northwest regions—leadership in the Northwest region—return to southern California to work with the Southern California Permanente Medical Group—challenges of working as a business administrator in a medical group—instituting a new physician recruitment program—short stint in Washington DC assisting with the Georgetown acquisition—program expansion

Audio File 3…………………………………………………………………………34

Transfer to North Carolina in 1988—problems in North Carolina—comparison of established to expansion regions—comparison of North Carolina and Georgia—transfer to Georgia as a regional manager—retirement of Jim Vohs as CEO, promotion of Dave Lawrence to CEO, and the transition process—Lawrence’s “change” agenda—transfer to Oakland as executive vice president—Lawrence and McKinsey & Company

Audio File 4…………………………………………………………………………49

Lawrence’s agenda and the non-for-profit vs. for-profit question—expense and the expansion regions—costs and benefits of creating a national program—decision to not expand into Chicago and decision to acquire the Albany plan—work with McKinsey consultants—contributions of McKinsey consultants—end of the regions, creation of the division structure within health plan—conflict between health plan and medical groups’ leadership

Audio File 5…………………………………………………………………………65

KP economic crisis of 1997 and 1998—KP response to the crisis—viability of a change agenda in KP—creation and impact of the Permanente Federation—KP Partnership Group—concluding thoughts—Labor Management Partnership

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Richard Barnaby Interview #1: 05-07-2008

[Begin Audio File 1 barnaby_richard1_05-07-08.mp3]

01-00:00:00 Meeker: Today is 7 May, 2008. This is Martin Meeker interviewing Richard Barnaby

for the Kaiser Permanente Oral History Project. And the way that we always get started on these interviews is asking you to state your name, and when and where you were born, and then maybe just a little bit about your background and your upbringing.

01-00:00:36 Barnaby: Okay. My name is Richard Barnaby, and I was born in Pittsburgh,

Pennsylvania. Moved to, of all places, Buffalo, New York when I was about seven years old, because my dad was an employee of Westinghouse, and they transferred him from Pittsburgh to Buffalo when they opened a new plant. I guess that was about 1948. And I went to school there in Buffalo, New York—in a suburb of Buffalo, actually. And I started college after—on a football scholarship at the University of Buffalo. However, after about six months, I decided I wanted to join the military, so I left school, joined the military.

01-00:01:26 Meeker: What years were you in the military?

01-00:01:28 Barnaby: I was in the military actually from 1957 to 1964 as a reservist.

01-00:01:37 Meeker: And what branch?

01-00:01:39 Barnaby: United States Army. And I joined as a reservist, and served my six months

active duty, and then went on seven years of—about seven years of reserve duty.

01-00:01:55 Meeker: Why did you decide in 1957 that you wanted to join the military?

01-00:01:59 Barnaby: Well, just an adventure. I've always been one who thinks of things in terms of

adventures, and college life was like high school life, [laughter] and it just didn't seem exciting to me. So I went on a football scholarship, got injured. Couldn't play football, because I had a knee injury. So I said, "Well, let me try something else." So much to the—disappointed my parents. I joined the Army without telling them, and because I was of age.

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And so I did it. And I wasn't sorry I did it, but then I came back from that experience, went back to college, and I actually went to several colleges as I tried to find my way. And then somewhere in 1962, I moved to California as a very naïve young man. I think I forgot to mention: along the way I decided another adventure was to get married, so I got married. And so by 1962, I decided that my fortunes didn't lie any longer on the East Coast. They were on the West Coast. Another one of these adventures, things. So—

01-00:03:29 Meeker: Had you previously visited California?

01-00:03:31 Barnaby: Yeah, once, with my parents, as a kid. I had an aunt and uncle that lived out

here. But it was really looking around at—and you know, I'd like to call it insight, but looking at the rust bucket of the East, and I was working—at this time now, I was going to night school back at the University of Buffalo, and working in a factory. And I applied for a supervisor's job, and I was told I wasn't old enough to be a supervisor. I was only like, twenty-two or something like that, so come back in five years and maybe you'll have enough whiskers on you to do that. I said, "Eh, maybe my life—my fortunes lie elsewhere."

And so I thought, "Oh, California. A warm climate. So here I go." So—

01-00:04:23 Meeker: What was the factory you were working at?

01-00:04:25 Barnaby: Westinghouse. I worked at Westinghouse, following in my dad's footsteps.

01-00:04:29 Meeker: And what was being manufactured there?

01-00:04:31 Barnaby: Mostly AC/DC motors, welding systems, controllers—it was a very large

plant, had over 10,000 workers at the time. It is totally gone now. Westinghouse is a different kind of company. And my dad worked for Westinghouse—he worked there for forty-six years, so he was a long-term employee, and was a plant superintendent. And I just saw life in a factory is not—even in management was not something that I thought was worth pursuing. So long story short, I packed up my pregnant wife—we had two children—and moved them to California. They stayed with a relative. I waited six months, saved all the money I could. Sold my car and moved to California, not realizing I needed a car to survive in California. And showed up.

01-00:05:37 Meeker: Well, where in California did you move?

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01-00:05:40 Barnaby: Ontario. Because that's where these relatives were staying that my wife was

staying with. And I thought I had a lot of money. I had saved up over $2,000. I thought, "Wow! This is more money than I've ever had in my life." And my third child was born in California.

So anyway, here I am. Basically, no skills. I've got a couple—maybe two and a half years of college starting out as a Phys. Ed. major, switching to a Business major. No degree. I think I'm the smartest guy on the face of the Earth, which was soon to be proven wrong, but—So here I am in California: no job; no prospects of a job; a wife, three kids, and 2,000 bucks in my pocket. I'm on top of the world. [laughter]

A friend of mine is in systems data—well, he called it "systems analyst." It was part of data processing in those days. I went to a meeting of data analysts, and met a guy from Kaiser Permanente. And that's what I did, and I said, "Well, I'm new to the area, looking." And he said, "Geez, I think the company I work for is hiring." And I said, "Well, geez, who is that?" And he said, "Kaiser Permanente." I said, "Oh, geez, what do they do?" I couldn't even hardly pronounce the name. I thought it was a strange name, Permanente. And he said, "Well, they're hiring. They're looking for medical records people and/or general clerks." And I said, "Well, geez." And so I said, "Where is it?" And he said, "At the regional offices on Sunset Boulevard, Sunset and Edgemont, where the regional offices of—at the time, 4900 Sunset Boulevard was the regional office. And this was for Southern Permanente Services, Inc., which, you know, is no longer part of the four entities. But—.

01-00:08:00 Meeker: That became absorbed by Health Plan? Is that correct?

01-00:08:02 Barnaby: Yes. It was liquidated, and it was liquidated because, if you'll remember back

somewhere in the seventies, there was a lot of healthcare companies who were shuffling money off into these administrative arms, the profit they—you know, to the owners. And so Kaiser Permanente did not want to give the impression we had anything like that going on, so we liquidated SPSI. We just folded it all into the Health Plan. But originally, there were the four entities, as I said on my little job summary I sent you.

01-00:08:42 Meeker: Yes.

01-00:08:43 Barnaby: Yeah. And so my first employer was SPSI. Northern California had the same

organization, only it was called "PSI." It didn't have the "Southern." It just was "Permanente Services, Inc."

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01-00:08:57 Meeker: So being four entities—SPSI was as distinct from the Health Plan as it was

from the Medical Group?

01-00:09:07 Barnaby: Yes. It was distinct from the Health Plan. It was wholly owned by Health Plan.

But it had its own paychecks, everything. You worked for SPSI. When you got your W-2 in the mail at the end of the year, it said, "Southern Permanente Services," as opposed to the Health Plan employees' that said, "Health Plan, Inc."

01-00:09:27 Meeker: So I'm guessing that SPSI provided services to the Permanente Medical Group?

01-00:09:33 Barnaby: They provided services to Health Plan hospitals and the Medical Groups.

01-00:09:40 Meeker: And what kind of services were those?

01-00:09:41 Barnaby: Administrative. It was all administrative: accounting; purchasing; all finance.

Nothing but administrative services. And you know, it went away, and five years later no one remembered—the only way you would know there was an SPSI is if you talked to somebody that might have worked for them, or you read some of the old information around. Just, we went along very nicely without it.

At any rate, I was interviewed. I came in for an interview, and was offered a job in medical records, which would've been a midnight till 8:00, or as a clerk, a general clerk in SPSI working out of the print shop. And because I didn’t have a car—and mind you now, I'm living in Ontario, and I'm fifty miles away from 4900 Sunset. So this fellow who introduced me to the whole thing said, "You know, I carpool with three other guys. You're welcome to carpool." So I spent the first year carpooling in a Volkswagen Beetle with four guys. [laughter] Sometimes five. There sometimes was a fifth. And crammed in that thing coming in the 10 Freeway, which was the only freeway at the time that took you into Los Angeles. And I did that for about a year, and then—and I gave—you know, I paid for gas and so on. And so when those fellows who were in management—one of them was in HR [human resources], another was in Systems, another one was a systems analyst—when they had to—so I was hourly. I was actually part of the union. When they had to work late, I had to stay late. [laughter] You know? Because I was dependent on them. And after about a year, I got a car, and was on my own.

So that's how I ended up at Kaiser. I knew nothing about it. I didn't have a clue what Kaiser Permanente did until they handed me the employee handbook and said, "Read this." And the rest is kind of history.

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01-00:12:11 Meeker: Well, what had been your previous experience with healthcare?

01-00:12:14 Barnaby: None. You know, going to the doctor and getting a broken leg fixed, and a

few things like that.

01-00:12:20 Meeker: But it was kind of a fee—obviously, a fee for service model. You know: you

broke your leg?

01-00:12:26 Barnaby: Yeah. I had no framework of reference to prepaid healthcare. It was

interesting to me. I mean, I was kind of inquisitive. It was interesting, but to be frank, it was a job, and I had three kids. And I started for $368.58 a month. I think I still have my original paycheck, the paystub. And I was on Easy Street again, you know? [laughter]

01-00:12:58 Meeker: I assume that you became a member of the Health Plan. Yeah?

01-00:13:05 Barnaby: I was a member of Health Plan.

01-00:13:09 Meeker: Do you have any memories of any kind of early experiences during this period?

01-00:13:15 Barnaby: Oh, yeah. Well, first of all, my whole family to this day are all Kaiser

members. My three children have been Kaiser members since 1962. They are now married. Their kids are Kaiser members now. Though I had like—actually, I had, like, five generations of family members in Kaiser Permanente.

Yeah, I remember. You know, the service was terrible. The lines were long, the waits were terrible, and you felt like you were lucky that they were going to see you. The mantra, so to speak, was, "This isn't a good place to come if you're not feeling well, but if you're really sick, it's a good place to get taken care of." And otherwise—if you've got to go into the hospital, you're going to get world-class care. Otherwise, stay home, take a couple of aspirin, and drink some juice.

And I remember I actually in 1964, I had to have some surgery. So to speak, I was in Sunset Hospital on the "employee floor," they called it. And I'm not sure whether that meant you were getting good service or bad service. And the surgical wound started to bleed, and I literally—because I now knew the system, I rang the pushbutton thing to get attention in my room. Nothing happened, but I knew enough about the system that I picked up the phone in the room, called the nursing station down the hall and said, "You know, I have a problem down here. Can you come down here and [laughter] take care of it?" Because I knew how to get around the system. And again, a lot of people

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always said, "You know, Kaiser doesn't work well unless you know how to work the system."

That's all changed, but I think in the early days—again, the kernel of the idea about the kind of care we gave and the notion of prepaid, and all your troubles are over, you don't have to worry about paying at the point of service, for the most part was a very good thing. It's just that we hadn't learned yet how to consistently provide it. The level of service especially—particularly service—varied. And the average person walking the street doesn't know good, quality care. They know good service. They know if they've been treated well, if they've been taken care of well, and timely. They don't know much about outcomes. They don't know much about quality of care. They don't look at indicators. The average person doesn't look and say, "Well, at this hospital, twelve people died last month from open heart surgery, so maybe I shouldn't go there." The average person doesn't know that. They put their trust in the physician, in the system, and expect it to work for them, so—. Often, our rep came from the service side rather than the quality side. And I think that's probably still true today, although the consumer is more sophisticated than ever, they're still not that sophisticated when it comes to realizing what good, quality care is, as opposed to good quality of service.

01-00:17:07 Meeker: Okay. So then over the next several years, you kind of made a steady march

up the administrative ladder?

01-00:17:16 Barnaby: Yeah, I did. And you know, after about four or five months, I was made the

supervisor of Shipping and Receiving. You know, a dream come true: finally, into supervision. And ran the mailroom, shipping and receiving. And then I also took over the print shop. I had no background in printing, but I took it over and ran that. And so I kind of marched up, did a number of jobs, and I think the—what was important there was when I got asked to do something, I said, "Yes." I didn't think much about am I capable of doing it, or do I have the qualifications of doing it? I figured someone else was figuring that out. So I figured, "Well, you know, if they're dumb enough to ask me to do it, I'm dumb enough to do it." It was kind of that approach to things.

And so I did: I marched up, and I held—as I think I showed you when I sent you my little thing on background, I had a lot of different jobs, and kind of going into the accounting/finance side. But I ran our data center for two years, and went through—basically, I did things that a lot of people don't even think about anymore. I converted from card to disk—well, card to tape to disk. I changed out—we went from IBM to Honeywell, which was not necessarily a good thing. I moved into new data centers. And basically, how did I qualify for that? Well, somewhere back in the—I went to a three or four-week program with IBM learning how to run collators and sorters and interpreters, you know? That was my background in computers.

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01-00:19:20 Meeker: What sort of data was being managed at this point? Like what was the

electronic data that the organization produced?

01-00:19:30 Barnaby: Well, we had our whole membership file, so we ran our—for one thing, the

big—you know, the payroll, for example. We did our own payroll, of course. We had our membership file, which produced membership bills, which was core to the Health Plan's business. And that was all on a card system when I got involved. That was boxes and boxes and boxes of punch cards. And of course, there were different cutoffs for billing and for different groups, and a whole reconciliation process that had to take part on the monthly billings. Eligibility, for example. You know: new hires, eligibility, all that stuff. And so it was a very cumbersome process, as you might imagine, with everything being on punch cards, trying to keep it updated. And of course, we had a whole room of keypunch operators doing this stuff, and then—

01-00:20:35 Meeker: How accurate do you recall this data being?

01-00:20:40 Barnaby: You know, at the time, it was accurate. The problem was the accuracy

depended on the groups' reporting. So how sophisticated the groups were in reporting data determined how accurate our information was in terms of, you know, their new hires, terminations, people on maternity leaves, and that stuff. So it was dependent on the reconciliation of the bill, and getting the groups to report in a timely way. Actually, my wife actually worked in membership accounting, and there was a whole department called "Membership Accounting" that took care of all this stuff, so—that fed into the data system. And so it was a very cumbersome, awkward process, but it's what the technology dictated at the time. And then as we moved on, groups got more sophisticated, got more technically capable. So did we.

01-00:21:50 Meeker: During this period of time, were you playing a role—like a decision-making

role—in moving from IBM to Honeywell, or upgrading to the latest software or hardware, as the case may have been?

01-00:22:05 Barnaby: Not really. Basically, it all came from down. I mean, I was involved in the

discussions, but I wasn't involved in the decision that we're going to convert from IBM, like when we went from the IBM 1400 punch card system to the Honeywell 400. And believe me, it wasn't a well thought out process. We were sold a bill of goods that the conversion would be twelve hours. You could unplug the IBM, and move the Honeywell in, and in twelve hours, no one would know the difference. Well, [laughter] I don't know if you've worked in computers, but it didn't work that way.

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01-00:22:52 Meeker: Well, how did it work, in this case?

01-00:22:54 Barnaby: Well, it was a mess. I mean, it didn't work well. We spent months trying to

convert and get this thing straightened out. And supposedly, the two systems were compatible—that's the bill of goods—and conversion from IBM to Honeywell would be almost invisible. Well, we worked hours and hours and hours of—I spent one time five, six straight days at the data center and never went home trying to get our payroll to work. And you know, there's one thing you never do in a company: it's miss a payroll. I mean, that's the kiss of death.

And it was things like that. It was just a difficult—I mean, and we were converting not only from IBM to Honeywell: we were converting from card to tape. So we were making two significant steps, and leaps in technology, and on the faith of what the salespeople told us—you know, the marketing people for Honeywell.

But we survived it, and we got through it, and—but the idea was not—I guess the process of selling the conversion was not very sophisticated. I sat at meetings and said—you know, people would sit there and say, "Oh, we're going to save this much money, and we're going to gain this much capability." "Gee, that sounds like a good idea. Let's do it." There weren't long—at least I didn't see any real benefit/cost analysis taking place, saying, "This is a good idea."

01-00:24:35 Meeker: The benefit/cost analysis was based upon assertions by salespeople, it sounds

like.

01-00:24:40 Barnaby: Pardon me?

01-00:24:41 Meeker: The benefit/cost analysis was actually just opinions of salespeople?

01-00:24:45 Barnaby: Yeah. And you know, convincing our folks that it was a good idea, and we

were at the right—at the time to do this. And of course—let me just add one other thing. When you went from a card system, and now you went to a more sophisticated system, it required a lot of environmental changes. Now we had to have raised floors, and air circulating underneath the floor. Before, everything sat on the cement, and it worked just fine. So our level of our knowledge of technology had to also be enhanced, because we didn't have a clue.

So we made two or three leaps at that time, quantum leaps in directions that we weren't—you know, it's a good thing we were naïve, because if we weren't, we wouldn't have been successful.

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01-00:25:46 Meeker: Yeah. You wouldn't have made these leaps?

01-00:25:47 Barnaby: You know, again, we had this thing: we can do anything, and we'll do it. And

we did it.

01-00:25:54 Meeker: It looks like you then began to move more into accounting, and eventually

into the controller's office.

01-00:26:02 Barnaby: Yeah.

01-00:26:02 Meeker: So how did you make a transition from what sounds like kind of systems

operation and management to accounting?

01-00:26:09 Barnaby: Well, I had taken Accounting 101, so I was well equipped to [laughter] pursue

area in finance. And so I actually got introduced into mainstream accounting by being appointed the supervisor of Accounts Payable, which was a terrible job. We were very unsophisticated. I took over the job. They fired the guy that had the job before me, and I walked in the office with the supervisor—my new supervisor—and I said, "What is this file drawer?" And he said, "Jesus, I don't know." "What's this file cabinet?" He said, "I don't know. Let's look." Well, [laugher] it had all this stuff in it that the guy didn't do, and the reason he got fired.

01-00:27:07 Meeker: Bills that needed to be paid?

01-00:27:09 Barnaby: Bills that needed to be paid. Hopeless stuff that—and it was all manual. Our

whole process was a manual process of matching a receiver against a purchase order. And it was just terrible. But it was a good learning experience. But it was an incredible nightmare to get involved in. But again, because I was young and stupid, I couldn't tell the difference, so I just thought it was a good thing to do. And then I became manager of General Accounting within a year or two, and not only did I start to like finance, but I started to have a few mentors that came along and were very helpful to me.

01-00:28:02 Meeker: Do you recall their names?

01-00:28:02 Barnaby: Yeah. There were two people that were most important to me. One was a guy

by the name of Bob Krikorian, and another was Walter Palmer. You might have heard Walter Palmer's name around. He was kind of the father of accounting in Kaiser. And they're both passed away now.

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And so they were very instrumental in helping me begin to see what the future might look like—not necessarily in a kind and gentle way, but in a fact, both of them—I happened to be the manager of Accounting at that time, and they both called me in their office and told me that they were demoting me. They wanted to hire a CPA to be in charge of Accounting, and you know, they weren't looking at me when they were saying that, and—. But they said, "We want you to go to school and finish your education. So we're going to basically freeze your salary. We're going to make you an assistant to the regional controller. You'll do projects, and we'll be flexible with your schedule so you can go to school." And the first thing you have, you kind of reel from that. Say, "Yeah, okay. When am I getting my pink slip?" You know? But they were true to their word. And I went back to school, and finished school.

01-00:29:55 Meeker: Where'd you finish up?

01-00:29:58 Barnaby: I went to a small school in Los Angeles. It's now called "Woodbury

University." It was Woodbury College. Kind of catered to full-time, working people. I got a Bachelor of Science degree in Accounting. And then I went to Claremont Graduate School and got my Master's. And then I went on to—

01-00:30:19 Meeker: MBA?

01-00:30:22 Barnaby: Master's of Arts in Management. And then I went to La Verne University for

postgraduate work.

01-00:30:38 Meeker: So in this, it sounds like they were trying to groom you for a more senior role

in the organization.

01-00:30:43 Barnaby: No, I don't think so. I think that they—you know, I don't think it was that deep.

I think they had faith in me that I could do more. I don't think they were grooming me for anything in particular. I just simply think they had faith, and that I could do more, I had something to offer. And you know, there was kind of, if you do this, and if you finish and show us you're capable, we'll move you on. And they did. I think the week I graduate and got my undergraduate degree, they made me director of financial planning. So there, it was a kind of—it was a promise kept, but no guarantees. There wasn't anything like, "Here's the chain that you're going to follow." On the other hand, I think I tried to work hard. I tried to make a commitment to the organization, and tried to do well. So it was a two-way street. But you know, at that time, if they hadn't done that, I probably would've—God knows what I would've done, but you know, it was kind of the kick in the seat of the pants; you need to pull it all together.

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And so the bad part is, I'm the kind of guy that when I do something, I do it all the way or not at all. And so I went. I worked full-time; I went to school and carried eighteen units. And because of all the schooling I had before—because I had Physical Ed. and liberal arts and a couple business courses, I managed to transfer one year out of about two and a half for credit. And so I had to make up three. So I actually went year-round: I went to summer school, I carried eighteen hours, and finished up in about two and a half years. And managed to do my job. You know, you always pay the price, because part of the price you pay in something like that is ignoring your family a little bit, so there was always a—it's not a panacea, you know? You pay the piper somewhere along the line.

01-00:33:11 Meeker: How did that then work out for you?

01-00:33:12 Barnaby: Well, it didn't. I ended up being divorced. But it didn't change my relationship

with my kids. That was good. And they've all gone on to go to college and have their careers, so that was fine. But in the process, my wife and I got divorced.

01-00:33:35 Meeker: So the education you received at Woodbury, did that, do you think, prepare

you well for—

01-00:33:42 Barnaby: Oh, absolutely. Yeah.

01-00:33:42 Meeker: —the next stage?

01-00:33:43 Barnaby: Yeah. I mean, it was the same education you'd get at any other university. You

know, I had enough practical knowledge of accounting, and—but you know, I went through the whole thing. I took the CPA exam and passed it. And so yeah, it prepared me. It prepared me for—well.

01-00:34:10 Meeker: What, then, was the director of financial planning? What sort of work did you

do under the auspices of that office?

01-00:34:16 Barnaby: It was budgeting. Yeah. It was preparing the budgets for the Health Plan

hospitals. So you know, accounting is keeping the books; financial planning was preparing the forecast for the—you know, we did the current year forecast; we did the long-range forecast, five-year, part of the strategic plan—that kind of thing.

01-00:34:50 Meeker: And so the key elements of that would have been level of membership—?

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01-00:34:54 Barnaby: Membership, dues revenue, your expenses, your payroll, your employee

benefits—you know, incorporating all those things into creating the budget.

01-00:35:05 Meeker: Were there certain models of forecasting that you were using? How accurate

was it, in retrospect?

01-00:35:11 Barnaby: Well, at the time, our model of forecasting was we had five Cubans. [laughter]

Literally speaking, five Cubans. And we did everything—there were no computers. No technical capability. We did everything by the old-fashioned green spreadsheets. We had a lot of resident knowledge of like, the dues process, but everything was longhand. There was no technology, and technology really didn't get introduced into any of this process until probably 1979. It was strictly longhand. It virtually took us six months to put budgets together, get them reviewed. And the nightmare would be—especially the long-range plan, our five-year forecast, when we'd take months to get the budget done—we'd go to a budget review meeting, and someone would say, "Well, let's change depreciation from ten years to twenty years," and we had to go through all this manual gyrations to get these things to—or to demonstrate the impact of that on the budgets. It was just a nightmare.

But we literally had, at that time, an influx of Cubans into the country, and into—I don't know where this fly is coming from—into Kaiser Permanente. And they were very skilled financial people. They came to this country with a lot of accounting background. Castro kicked them out, and they were relentless workers because they were in a new country trying to prove themselves. I had a staff of like, seven, and five of them were Cubans. And so I used to say—you know, we used to be called "the Cuban connection" for the forecasting.

01-00:37:33 Meeker: At this point in time, I assumed you were learning about healthcare economics,

and the various different systems in which healthcare was financed in the United States.

01-00:37:49 Barnaby: Yeah. Except Kaiser Permanente was always an inward-looking company. At

least at this level, we never looked outside much. We always looked internally. And so I don't want to say we were isolated, but I guess in hindsight, we were. We closed ourselves off to the outside world in a lot of ways. And we had the Kaiser Permanente way, and that's the way we believed medicine should be financed, and nothing was going to change our minds. And I think that that probably the biggest revelation around that came when Medicare—and I mentioned Walt Palmer's name. Walt was probably, in terms of—I'm talking nationally now—was probably the most influential person around Medicare legislation of anybody in this country. He literally, as I'm told, sat in

13

Washington and scribbled things on napkins and et cetera, along with a few other people from Kaiser Permanente. Maybe Scott Fleming was another one. I don't know if you know Scott, but—

01-00:39:19 Meeker: I've only read his previous interview.

01-00:39:20 Barnaby: But that kind of opened our eyes to the world other than Kaiser Permanente.

And I think that was probably the first time we really started to think outside. Otherwise, it was prepaid, and pay up front. Of course, that's been one of the problems: we have never really been truly prepaid.

01-00:39:46 Meeker: Yeah. How so?

01-00:39:49 Barnaby: Well, if you look at the way groups paid, they don't always prepay—you

know, used to carry a sizeable receivables on the books for groups in arrears. So even though we were—and the concept was prepaid: you pay in advance, and you get the care. We've never really been prepaid in toto because people don't pay on time. And yet, our relationship with groups, et cetera, have been such that we just don't cut people off. And even when we do, it's not without a lot of thought.

01-00:40:40 Meeker: Well, what sort of elements then went into forecasting? I mean, were you

asked to consider things like, you know, the indemnity funding cycle, or historical contextual issues? I don't know: probably in the early 1970s, wage and price controls instituted by the Nixon administration, or—?

01-00:41:03 Barnaby: Yeah. Well, we were right smack in the middle of price controls' impact. But

quite frankly—and there were a set of rules published on how that all works. But again, I don't want to undermine the notion that we are this very sophisticated machine out there. In my opinion, we weren't. And I can cite you how we set our dues rates internally. You know, you'd go like this, and you'd go through the initial forecasting. And remember: when you put out a request for a budget, everybody turns in what they'd like to have on the best day of their lives, you know? And time and time again, we'd end up getting a final budget first crack with a 25 percent dues rate increase, or a 30 percent dues rate. Well, you know, you did this, and you knew 30 percent was not going to fly, and because everybody would turn in their wish list.

01-00:42:22 Meeker: And the employer groups would say, "Thank you, but no thank you"?

01-00:42:25 Barnaby: Well, we wouldn't even take it that far. Internally with management, we'd say,

"We can not market a 30 percent rate." And we knew that somewhere—and

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there were plenty of years where we had double-digit rate increases. But we knew that it wasn't going to fly. We couldn't be competitive. We didn't know what the right number would be, but someone, some brilliant member of the management team, would stand up and say, "We've got to be under 9 percent." Where 9 percent would come from, who knows? But 9 percent. So all of a sudden, 9 percent becomes the target. We've got to be under 9 percent. You know: 8.99.

And so we'd all scurry back, and we'd go through our manual manipulation, and then we'd send things, and we'd call departments head in and say, "You've got to do this," or "We've got to knock out these positions," et cetera. And we'd work the process until we'd get to 8.99, and then cross our fingers that in fact, we were able to control expenses to that extent. And as you know, in any company, there are things external that you can control, and there's things internal that you control, and there's a whole bunch of things external that you can't control. And that's where you crossed you fingers and hoped that we were right on the money.

I remember sitting in meetings with Carl Berner where he desperately—he was the Health Plan manager in Southern California; now deceased. He desperately, this one year, wanted to be under 15 percent. And we had squeezed the budget to the point where we weren't able to get under 15 percent with—and have a credible budget. And I was working for the Medical Group at the time, and we sat in there, and Irwin and I—Irwin was involved a little bit in this. And Carl was just beside himself. He wanted to be under 15, and with absolutely no evidence we could do this, I said okay. We needed $3 million to get under 15 percent out of the budget, and I said, "The Medical Group will kick in $1.5 million if you kick in 1.5." "Done!" [laughter] And Frank sat there with his open and said, "Jesus Christ, where are we going to get $1.5 million?" And I said, "Look, we need to"—and I believed we needed to get under 15 percent, and I believed that. And I also knew that in our system of budgeting, we had enough fluff in there somehow to get below—get that $1.5 million out.

01-00:45:17 Meeker: Well, so you were at the Medical Group at this point in time. Did you play a

role in finding that 1.5, and what were some of the places that it was drawn from?

01-00:45:28 Barnaby: Well, we had a way of budgeting for, for example, employee benefits that

always left room. There was always room to shave a little money out of that. We also fudged on what they called the "basic contractual payment." This is the payment that Medical Group got from the Health Plan. Because when you told physicians that they were going to receive a potential basic incentive payment of $1,000 each, the last thing you wanted to do is give them $900. So in the budgeting process, if you said, "We're going to target $1,000 incentive

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payment for each physician," you built the budget up to $1,100 so you didn't go down to $900, you know? You'd kind of hit that on. So intuitively, you began to realize there are areas where we have to tighten—ratchet down, but we—there's room.

We also knew that historically, people turn in requests for staff, and they don't hire them in the timeframe that they want them. Everybody turns them in January 1. Well, first of all, January, February, March are poor hiring months. And so you know that there's a delay in hiring which then reduces the equivalency of an FTE. So again, over the years of getting budgeting experience, you'd know that there are places to look that you can take a risk on, and be assured that you probably are going to be okay.

01-00:47:13 Meeker: So for example, a department chief would say, "I need a new pediatrician,"

and the way that medical school education went, that pediatrician wouldn't actually start until August, but they would be budgeted for twelve months for that year, and so you would be a little bit—?

01-00:47:27 Barnaby: Yeah. And mostly, those positions were non-physician staffs, because you are

pretty precise on when physicians are going to come. They are going to finish their training programs, and will come on in the fall, for example. Where you take a chance there is that you know by specialty that you've been recruiting dermatologists for five years. You've had ten openings; you've gotten three. Okay. What's the likelihood that you're going to get all ten of those, or whatever number the incremental number is? Probably slim and none, so you can begin to fudge a little bit on that. You know, internists, pediatricians? I hate to say this, but you know—I don't want to say "a dime a dozen," but you don't normally have trouble recruiting pediatricians, so you can't say to yourself, "I’m not going to get these five guys or gals." You can find pediatricians anytime.

01-00:48:29 Meeker: Or what about the tendency during this period of time to regularly lose

orthopedic surgeons because the compensation wasn't comparative to what the fee-for-service sector would pay?

01-00:48:41 Barnaby: Yeah. I think orthopedic surgeons, dermatologists, cardiovascular people,

those were the high-end specialties. OB? Those are the ones we'd lose. And when our staffing patterns were affected by losses, we'd have to have extra duties, per diems come in, which again now begins to impact the quality of care. You have people that don't know the system; they're basically in it for the money. They are not long-term employees. Not potential partners, the per diem kinds. And so you sacrifice one thing for the other. You have bodies, but you don't have the buy-in into the organization.

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You know, I used to sit on the Physician Compensation Committee, and we would struggle at being competitive, not in your primary care positions, but your high-end specialties. And so that's where were hurting. But they're cycles. Those things kind of cycle around and come back, and in some years, you do very well out there, and other years, it's a tough sell.

01-00:50:08 Meeker: So I assume what you were just talking about as far as sitting on that

committee, that would've been during your period working for the Medical Group?

01-00:50:16 Barnaby: Yes.

01-00:50:18 Meeker: Backing up to the 1970s—and I guess it was in about 1978 that you moved to

the Northwest to work in that region?

01-00:50:25 Barnaby: Exactly. Yeah.

01-00:50:27 Meeker: Okay. So prior to that, you had mentioned that the 1990s was a period of crisis,

but you said that so were the sixties, seventies, and eighties. What were some of the challenges that you faced as controller in Southern California in the 1970s that were memorable challenges, and how were those addressed? And obviously, they would be financial-oriented ones, considering your position.

01-00:50:54 Barnaby: Well, it seems like in Kaiser Permanente, there wasn't a year that went by that

there wasn't a challenge of one sort of thing. It was, if you're going to have membership shortfalls, you're going to have layoffs. If you're going to have layoffs, you're going to lose some of your key talent. And so part of the challenge in the seventies was, because we had a number of kind of up and down years, how do we continue to grow as an organization and track high quality people and retain them, given that there's always a squeeze on the organization's finances.

I think the other important process was Kaiser Permanente has always been somewhat personality-driven, so who's in charge and what relationship that person on the Health Plan side has with the Medical Group side is instrumental in determining, “do we have calm seas, or do we have rough seas? Are we in the Bering Straits there, you know, in the Gulf of California?” And there's a lot of folklore around this in terms of the leadership, and what was the leadership going to do. Could they get over some of the personality conflicts just to move the organization forward? And sometimes it did, sometimes it didn't. You know, we had unique people.

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Ray Kay; I'm sure you know the name Ray Kay. I knew Ray Kay very well. I used to drive him to work in his latter years with the program. He was a very good friend of mine. He lived in Upland, and I lived in Ontario, and I was given the job, by the way, because he was the medical director—the founding medical director in Southern California. And his wish was to die at his desk. Which he virtually did. But I was given the job by Frank Murray to keep him out of his office, because Ray didn't want to let go of the business, and by now Ray was developing nurse anesthetists, the nurse practitioners, and doing things like that. But he always had ideas, and so I was a buffer between Ray Kay and Frank Murray so he wouldn't pester Frank to death, and because I drove Ray to work when he had eye surgery and couldn't see, and he'd tell me all his old stories. But he was a little guy with—Ray was only about 5'5", but he was seven foot tall when it came to managing and his place in the organization.

And so it's an example of personalities and the way they played out. We had Health Plan managers that wouldn't talk to medical directors. They weren't meeting with them. And we'd cause other people to go intervene in that. So there were trying times in the seventies around personality conflicts with Health Plan and Medical Group.

01-00:55:09 Meeker: Who were some of the people involved in those conflicts?

01-00:55:13 Barnaby: Oh, Hart Baker was the director of the Medical Group during that time. Dan

Wagster was involved, for example. Oh god, there's other people, I can't even remember their names now that were just people that—I mean, they—we were part of the cause, but—in terms of we believed in what the program did, but we couldn't see eye-to-eye on how we would do things. And there's always been tension. Even to this day, I would venture to say to say there's tension between the Health Plan and Medical Group. It's part of what keeps us alive and moving. Unfortunately, if it's not managed right, it can be destructive.

And I had the fortunate experience of working on both sides. There's not a lot of people in the organization that worked for both the Medical Group and Health Plan. It's almost taboo. I remember—if I can digress for a moment—when I left the Health Plan and came back to Southern California working for the Medical Group, I had medical directors come up to me and say, "Now, you know, we don't want you talking to Health Plan people, because they're going to get the wrong impression of this relationship." [laughter] I would say, "Well, please," you know? And take a walk. I mean, I can talk to whom I want, and I know where my loyalties are. But that was the whole—you know, the Harry Shraggs of the world, the Bob—what was Bob's name? Boy, I really did it. It was Bob Scrogg?. These were medical directors from the local service

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areas that had the old school, and they were very contentious about the Health Plan, and what you could do. They were the enemy, so to speak.

01-00:57:37 Meeker: Who were some of the people, both on the Health Plan and Medical Group

side, then, who sort of cultivated more of a spirit of cooperation?

01-00:57:53 Barnaby: Interesting enough, it's like dual personalities. I mean, one day you'd better—

you're going to be judged on how well you get along with your counterpart, but don't cross this line, you know? And so I think the people who actually set the examples were the Walter Palmers, the Bob Krikorians, for example, the Carl Berners that made it more of their mission to see that the relationships were growing, and fostered, to the point where we weren't always, you know, suspicious of what people are doing.

But again, I'll tell you: if you go today and you speak—you know, you may have to kind of dig it out, but you will still find this attitude of "What are they up to?" You know: "Why are they doing that, and what do they want?" kind of thing. It's just kind of inherent. When you have partners who have similar but somewhat separate aspirations, you're going to have this suspicion of—you know, perhaps not well-placed trust in what they're going to do. And that's been the nature of our—it's like a marriage: you can't live without it, and you can't live with it. It's kind of, you know, pick the lesser of the evils.

01-00:59:31 Meeker: I should probably actually change the tape. We're at about sixty minutes, so—.

01-00:59:37 Barnaby: I don't know if that makes any sense for you, though, but it is—you know,

there's—it's hard to describe about how this program really functions when it's at its best, and when it's at its worst. And you know, it is like a marriage. A contractual marriage.

[End Audio File 1]

[Begin Audio File 2 barnaby_richard2_05-07-08.mp3]

02-00:00:00 Barnaby: —as you will ever find. He's [Bob Erickson] a very, very good guy, very

capable guy. But you know, I would tell you that—and Bob, if you ever hear this, [laughter] don't take offense. But he never wanted to change anything, and I had long talks with Bob about—or he had long talks with me, I should say—about why I was trying to change the organization. And we never saw eye-to-eye on it, but—.

02-00:00:36 Meeker: Well, the thing that he said about the distinctions between the two

organizations was about leadership and who the constituency of the leadership

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was. And people have taken issue with this, and hopefully I'm not misquoting them, because some people have found this to be somewhat controversial. But the leadership of the Health Plan is basically an executive director of a nonprofit agency, and that individual's main constituency would be the members of the Health Plan, according to this. As opposed to the Medical Groups, where it's actually sort of a democracy, in that the medical director is elected by peer physicians, and therefore the medical director's main constituency is the physicians. And if you think about physicians as the main constituency versus Health Plan members as the main constituency, that's not the same—it's a different universe. And so there's obviously going to be tensions there as the leaders are trying to—for instance, of the Health Plan—keep costs down so they don't lose members, and also keep quality high so their members stay healthy. Whereas the leaders of the Medical Groups are trying to keep their constituency happy, so don't overwork the physicians, and give them access to compensation that is similar to what their golfing friends would get working at a private hospital.

02-00:02:23 Barnaby: Yeah. And you just summed up the core issue in the relationship and what is

the driver behind a lot of the contentiousness between the organizations: it's that they fundamentally operate on different principles. And one is political. I mean, you call it a democracy, but it's a politically-driven system where the vote counts. What do you want to hear to get me in this position? And on the other side of it is the member rules. The member is the boss. You know, if you do an organizational chart of Kaiser Permanente Health Plan, at the very top would be the member.

02-00:03:14 Meeker: I guess if I had a chance to speak with Bob Erickson again, I would ask him

about it, and that would be staff, particularly unionized staff, on the Health Plan side, and how they might fit into the equation.

02-00:03:35 Barnaby: You know, staff is staff. I mean, the unions have a role in the success or

failure of Kaiser Permanente, because they represent the bulk of the people who provide care to our members. And that's one of the values of the Labor Management Partnership, was bringing labor into the decision process of the direction that Kaiser Permanente is going off in. Not as well accepted by the Medical Group, because they didn't want another partner, necessarily. And for the Medical Groups, their view is "This is labor negotiations. You negotiate a contract with your unions, and then you hold them to it." Where the Partnership was saying, "We want to give you a say in how we run our business." It was changing the dynamic of the—I'll generalize—the rank and file role in Kaiser Permanente. Now, you're not going to have all 100,000 union employees out there saying, "I want to do this; I want to do that," but through a organized process giving kind of the labor council an opportunity to weigh in and help decide the future of the program. I mean, we invited Peter DiCicco, who was then the liaison from the AFL-CIO [American Federation

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of Labor and Congress of Industrial Organizations], to board meetings, Health Plan board meetings. That had never happened before.

02-00:05:21 Meeker: Well, I certainly want to get into that question, but let's back up a little bit, and

maybe before lunch you can tell me a little bit about moving to the Northwest region to work as regional controller for Health Plan hospitals. Is this a position that you sought, or was this an opportunity that was sort of foisted upon you?

02-00:05:42 Barnaby: Yeah. Well, the latter. I never sought anything, frankly. In all the years I

worked for Kaiser Permanente, I never really applied for a job. You know, it was a phone call: "We'd like you to do this." And, you know, I was mostly too stupid to say no. And so, you know, I said, "Sure." You know: "I'll give it a try."

And so, you know, got a phone call from my boss saying, "They'd like you to go to Oregon." And I said okay, as regional controller. So basically, you know, we call it "regional controller." It was chief financial officer of the Northwest region.

02-00:06:25 Meeker: How was this different than your position in Southern California that you

departed from?

02-00:06:29 Barnaby: In Southern California, I was a Health Plan controller reporting to the regional

controller. And in the smaller regions like the Northwest, we didn't have those layers. We did in large regions like California and Northern California. For example, when I went to the Northwest, even though I was in charge of finance, I was also in charge of ISD.

02-00:07:15 Meeker: "ISD?"

02-00:07:15 Barnaby: Information Services. You know: data processing. You know, it used to be

"SP," "ISD," you know? Fancy words.

02-00:07:26 Meeker: How did you find the culture in Portland to be different from or similar to that

in Southern California? Such as the relationship between the Medical Group and the Health Plan?

02-00:07:38 Barnaby: In some ways similar; in some ways different. That's probably a copout in

terms of answering your question.

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02-00:07:48 Meeker: Well, provide me some detail, and then it won't be. [laughter]

02-00:07:52 Barnaby: The Northwest was a very unique experience in terms of the dynamics of

interpersonal relationships. The medical director and the regional manager, both of them came from Southern California; were very close personal friends.

02-00:08:20 Meeker: So at this point, was that Dan Wagster?

02-00:08:24 Barnaby: Dan Wagster and Marv Goldberg. They were both from Southern California.

Marv was from San Diego. Wagster, of course, was the Health Plan manager from Southern California. Their wives were personal friends, and that put most of us in the middle of a very kind of unique business relationship. A very uncomfortable business relationship.

The work was the same. I mean, in terms of the daily work and the things you do professionally, it was about the same kind of stuff. The region was smaller; it was not meeting its financial targets. You know, the scale was different, the scale of work, but the same stuff—with fewer people to do it, of course. Going from a very old guard management group to this new up-and-coming—I was new, Wagster was relatively new, Goldberg was relatively new, most of the senior management was pretty new. And part of that had been people—I can't remember. What was Bernice's name? Can you remember? Anyway, she had been there for—I mean, she was as old as the hills, and she was the regional controller. Been there—still produced financial statements with pennies. [laughter] I mean, this is what they were doing, with millions of dollars, and still didn't round anything off. Still showed—our monthly P&Ls had pennies on them.

And so, you know, the region was ready for a new group of people to come in and begin to provide leadership. But there was an issue that the leadership couldn't separate their personal from their professional, and it caused all kinds of issues for all of us. Not just me alone.

02-00:10:58 Meeker: Well, this sounds like you had another chapter in what you had said about

California: that leadership and personality are key to—.

02-00:11:07 Barnaby: Same thing. And again, at the time, we had a lot of budget crunch. We weren't

meeting our forecast. We were not losing money, but we weren't creating the kind of results that we had targeted. And Marv—I don't know if you've spoken to—I don't even know if Marv's alive anymore, but anyway, he's an entrepreneur. Marv got into trouble in California for selling horses and stuff to physicians. [laughter] He was always into some deal. And I'll never forget the time that—and I knew Marv very well. He was telling me he had three kids,

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all of them about ready to start college. He was building a brand new house, and he was sitting in his office one day, and he said, "You know, I just don't know"—he said, "I'm not sure what to do," but he said, "I think this year, we're going to target cash flow as the objective for physicians." And I said, "Building a new house, three kids starting college—of course you want cash flow!" I mean, he was always kind of thinking in those terms of "What's my priority?", not necessarily what the group's priority was.

And of course, the traditional leader of Health Plan, leader of Medical Group, where they butted heads on things like that, Dan didn't want any part of it. So then he'd send me or another guy, the Health Plan manager out of Washington, to do that. And so he put us in a very uncomfortable role. And I made the mistake, it wasn't fatal, but I made the mistake of talking about physician productivity. And we had lousy physician productivity, and I was comparing it to things like in Southern California, pediatricians seeing thirty patients a day, and you know, our pediatricians there were seeing twelve or thirteen. And you know, we can't afford this level of productivity. And oh, well, the roof came down, you know, on how dare I talk about what physicians do.

02-00:13:28 Meeker: You crossed that invisible line?

02-00:13:29 Barnaby: I did, many times. But you know, I felt I was obligated to do that. See, the

regional controller also, in regions like the Northwest, performed a function for the Medical Group, too. You were kind of their financial person, too. We kept their books and everything. They had a business administrator, but you know, they mostly did insurance stuff and the malpractice stuff. And so I did cross that line, and crossed it several times, because we were held accountable to see that the region produced its results. And after you look at the Health Plan and look at the hospital, where else do you go but to the Medical Group? And you know, they're supposedly your partner, so, you know, the buck stops there. And so you get into trouble, but it wasn't like I got into fatal trouble or anything. It was just that you burned your bridges a little bit when you'd do that kind of thing.

02-00:14:36 Female: You always got into trouble.

02-00:14:37 Barnaby: Huh?

02-00:14:38 Female: You always got into trouble.

02-00:14:39 Barnaby: I always got into trouble. [laughter] Yeah.

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02-00:14:40 Meeker: So let's pause.

[break in audio]

Well, we were just finishing up about Portland. In the summer of 1982, you make another big transition, which is not only from Portland back to Southern California, but from Health Plan to the Medical Group.

02-00:14:55 Barnaby: Yeah.

02-00:14:57 Meeker: And how did this change come about?

02-00:14:58 Barnaby: Yeah. You know, Portland was a very good experience for me in that it was a

good size in terms of to become the CFO, it gave me a lot of experience in dealing with very unique personalities—and more of that to come in the future—and it was a delightful place to work. We really had very good people. And it was a great place to live. And so I got a lot of personal growth out of it, and I got a lot of experience of dealing with the personality types in terms of the Medical Groups and the Health Plan. So it had its issues, but overall it was a very positive experience for me personally.

And then, like in most cases, I got a call that said Frank Murray was interested in talking to you. And I said, "Oh, okay." What was interesting about it was several years before I transferred to Portland, T. Hart Baker, who was the medical director of the Medical Group in Southern California, asked me if I would become the business administrator of the Medical Group, and I said no. I wasn't interested in changing—and this was before I knew about going to the Northwest, but I said no. I was happy at what I was doing. I thought I could contribute to the program better if I was on the Health Plan side. And I thanked him, because I knew T. Hart very well, and I used to review the financial statements with him every month. And I said thank you, but no, I wasn't interested in doing this.

It was interesting: at the time, they had a business administrator who—a very nice guy—and we sent him off to Harvard. And you know, we give people advances in their expense accounts, et cetera. And one of my accountants came to me when I was controller and said, "You know, this guy has not turned in an expense account in months, and he owes the company about $6,000 of advances." And so I asked the auditors to—you know, as an accountant, these things send a flag up, so you know, "Something's not quite right here." So I asked the auditors to go ahead and audit his expense accounts, and he had a company credit card issued from the Medical Group. Well, he had charged personal trips to ski resorts, and bought washers and dryers for his house, et cetera. And I was the guy that went and reported it, reviewed it

24

with T. Hart. And T. Hart was from the South, and everything was a handshake and a—you know, "My word is my bond," and he was just furious that this guy would do this. And this guy was a seemingly decent guy. And that's when he asked me if I would become his business administrator, and I said no, I really didn't want it.

So when I got the call that Frank Murray wanted to talk to me—you know, fast-forwarding—I said, "Eh, I've been there, done that. I don't think I'm that interested." And Carl Berner called me, who was then the regional manager of Southern California, whom I knew, and said, "Geez, I really want you to come down here and take a look at this." So I said, "Okay, Carl. I'll do it." And I came down, and I can't recall the dates, but I had an interview with Frank, and then I didn't hear again from him for—geez, I don't know—four months? And I had forgotten all about it. And frankly, you know, happy doing what I was doing.

And I had had knee surgery. I had blown out my knee playing softball, had knee surgery, and I was home recovering. And I was on Vicodin or something, you know? I was on the couch, and half-out, and I get a call from Frank. And he said, "Decided I want you to come to Southern California!" I said, "Okay! When do you want me?" You know? And here we are. So it was one of those kind of crazy things again.

02-00:20:20 Meeker: What was the transition like, from working at Health Plan to the Medical

Groups? Is there anything worth commenting upon?

02-00:20:30 Barnaby: Well, you know, I think I said a few things. I always considered us one

reasonably happy family, so I didn't see anything in the job that was going to be different. What really turned out to be different was the forewarnings I got from some of the medical directors. They said, "Don't talk to the Health Plan. You're going to be under suspicion of doing the right thing, of being loyal to the Medical Group, et cetera, et cetera." So again, that distrust that seems to float around the organization reared its ugly head again, and reminded me that even though you're doing something in the sprit of the organization, there's still those out there that question your motives.

But no. I mean, it was doing some different things, but stuff I had done before. And so it wasn't really a big—the big change was what flag was I flying? I think that was the—. And what helped was that I had a lot of credibility with the Health Plan people. That helped. The second thing is, the Health Plan didn’t like the guy that I replaced at all. That helped. And you know, I knew the game. I knew the players, and I knew the game quite well, so I wasn't walking in as some stranger from outside the program.

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[irrelevant conversation cut] 02-00:22:33 Barnaby: And the job content was not the issue. The politics became the issue, and how

you walk that line.

02-00:22:48 Meeker: Well, how did you walk that line? What were some of the strategies that you

developed in order to be successful there for six years?

02-00:22:55 Barnaby: Well, I guess the line I walked was I am who I am, and I believe in this

program, and I represent the Medical Group and—because that's who pays my rent. And I just represented as things took place, and over time I represented the Medical Group in that capacity as business administrator, and people saw that I wasn't carrying a flame for the Health Plan [laughter] along the way. And your actions and your words speak louder than anything else, so I didn't see it as a problem, and I don't think many people did. I maintained my relationships with my Health Plan counterparts. Some of them were personal relationships. I had personal relationships with Irwin, for example. Frank has been a personal friend for years.

02-00:24:01 Meeker: On this theme about personal relationships, are there any examples of how

those personal relationships you had with people in Health Plan helped ease both entities through maybe a difficult circumstance?

02-00:24:21 Barnaby: Yeah. Well, I think all there is to say about that is that your credibility is

established, and once it's established—and that's what I had: credibility with the Health Plan people. And believe me, I didn't always agree with the Health Plan. And I didn't always agree with the Medical Group, either. But I tried to represent the best interests of the Medical Group in our relationship with the Health Plan, and treat people fairly whether they were Health Plan or Medical Group. And that's basically gotten me through the day, and I don't think, except on a couple occasions, I was ever challenged on any of that. It was, you know, I know who I need to represent. There was no question between the Health Plan that when I was in a meeting, I'm representing the Medical Group interest. Certainly, you need to compromise along the way, but I didn't ever sense it was a problem. And if other people did, they kept it from me, you know?

But there were times when there were tensions. The Medical Group organization: you know, I'm an appointed; everybody else is elected. I sat at the board of directors table of the Medical Group, but the Medical Group is quick to point out that although I'm at the board table, I'm really not a board member.

02-00:26:01 Meeker: Or a physician.

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02-00:26:02 Barnaby: Well, more importantly, I'm not a physician. I mean, that was Irwin's thing.

You know, Irwin always said to me, "You have to remember you're not smart, because you're not a physician." That was always his statement to me. And I'd say, "Well, I hope I'm never as dumb as most of these guys are," you know? But you don't have those credentials. Now, the fact that they come to you with every single problem under the sun, individual physicians, trying to help them solve their screw-ups in their life, is another matter. But you're not on equal footing. You will never be equal footing in the Medical Group when you're not a physician.

02-00:26:47 Meeker: So when you did work as business administrator, what sort of additional work

was part of this job? I guess work in addition to finance work. Because it sounds like it's a position that's a much broader position than the CFO position would be.

02-00:27:08 Barnaby: Not really. They call it "business administrator" because that's a title they've

had for years. But if you were in a traditional organization, you may have been called "administrative director;" you could have been called a "CFO." You know, you handled—for example, all the accounting for the Medical Group was done by Health Plan, the books were kept by Health Plan, but all the statement reviews, all the decisions on where we charge things, all the budgeting process, was performed by Medical Group under my director. Physician payroll, staff payroll was part of the business administrator's duty. The staff in terms of the business office staff reported to this position. For example, Frank Murray's secretary reported to me, worked for him. I had to recruit that position. I did all the recruiting of the staff for him. Insurance, the notion of getting—for the physician retirement program, I was responsible for maintaining that, looking for investment vehicles. Like a real estate fund, invest some {inaudible} money in. And so basically, you are a chief financial officer as Health Plan might have. Same kind of duties—they just don't call it that. They may have even changed that now in terms of the organization. Somebody whispered something that they were thinking about changing that at one time.

02-00:29:00 Meeker: I think there is a different title now.

02-00:29:01 Barnaby: Yeah. And so, you know, same kind of things, only—the differences were

in—like the pension plan, okay? In Health Plan, the administration for that's out of the program office, where we administered that for the physician out of the local office. So I got more deeply into pension plan funding than I would've on the Health Plan side. That's an example of something where there's a little more intensity around it because it's not done a corporate level—it's done on local level.

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02-00:29:42 Meeker: What about marketing?

02-00:29:44 Barnaby: There wasn't really any marketing.

02-00:29:45 Meeker: That was a Health Plan function?

02-00:29:48 Barnaby: Yeah. The only marketing we did was—well, that was a Health Plan function,

I guess, in the sense of part of my duties was overseeing the physician recruitment staff. So we did some amount of marketing out there when we were recruiting physicians, interviewing. I did a lot of new physician orientation stuff. You know, when these physicians come in, they basically have no concept of what they're getting into. We did a pretty comprehensive orientation. Now, after we did the orientation, they didn't know what they were getting into, either.

02-00:30:28 Meeker: Well, what was part of the orientation? I mean, that kind of strikes to the

question of core values. And what was part of the education program at the time?

02-00:30:40 Barnaby: Well, we covered finance. We covered—

02-00:30:45 Meeker: So basically how they'll get paid, and how the members—

02-00:30:48 Barnaby: Yeah. We covered the history of the Health Plan, Medical Group; you know,

give them some historical perspective of the organization and its roots. We covered the financial side of things: how physicians get paid; the payroll system itself. In Southern California, for example, we had a W system. A "W" equals a unit of pay, and so they get extra duty Ws, et cetera, if they're working over—and go over how they're paid. We talked about the relationship of the Health Plan and Medical Group, in that they weren't Health Plan doctors. A lot of them always refer to themselves as "I'm a Health Plan doctor." You're a Permanente physician, and you're part of a separate organization. You should be proud of that. We talked a lot about benefits. A lot of comprehensive education time. For example, there's a very complex amount of benefits that physicians get for education, research, et cetera. That was all covered.

I guess that's probably it in a nutshell, but trying to establish with them that they were becoming part of an organization. See, a lot of them had come in through a residency program, so they were transitioning from a residency program into a staff physician, and they still had their idea they worked for Kaiser Health Plan, you know? [laughter] They refer to themselves as "Kaiser

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doctors," and we kept telling them, "No, you're Permanente. You are a Permanente physician. You should always think of yourself as that. You have a potential to be an owner in this business as a partner." And trying to develop some pride in what they do, rather than think that they're just another staff doctor in the Kaiser system. You know, most of these people sat there like a deer looks at headlights. The sad part is, we probably should have done several orientations: first day; six months; a year; et cetera. And it's just, time didn't allow it, I guess. But thinking back on it, we probably should have done more incremental things in getting them into the program.

02-00:33:29 Meeker: I wonder, in the process of putting some of those orientation programs

together, if you ever had misgivings about emphasizing to the physicians their distinctiveness from the Health Plan? Maybe if they did think of themselves more as Kaiser doctors rather than Permanente physicians, some of these long-term tensions would be less present?

02-00:33:54 Barnaby: I never had any misgivings about it. I guess I did have notions of really why

they couldn't see the program as most of us saw it: as a combination of entities coming together to provide a greater good for our members in terms of their health, managing their health, providing the physicians services, education, et cetera.

And the other thing that always troubled me is most of us always thought about this program in more than personal financial reward. You know, if that was really important to us, we would have gone to work for the for-profits and made a killing in healthcare. And the physicians, basically it's about money. They're under a lot of pressure from a lot of different directions. They are expected to earn a lot of money. And money was always at the root of the conversation, not necessarily, "Am I going to do the greater good for the member out there?" And so that was probably one of the things that we tried to work on more: that when you join a program like this, there's more than just you're going to get paid X amount of money. You're walking into a ready-made practice. All you need to do is bring the white coat we provide you. You don't have to worry about staff; you don't have to worry about hiring anybody; you don't have to worry about malpractice insurance—you don't have to worry about anything except showing up and taking care of our members. And it's a good thing. And as the years went on, we became more competitive, and—sorry. All organizations are competing for the same physicians, and you can't use the deal anymore that we provide everything for you, so we don't have to pay you a lot. You have got to pay competitive wages—and I think we do.

02-00:36:05 Meeker: Well, actually, this business about recruiting physicians was something that

Irwin Goldstein mentioned as one of your key contributions to the program at that point in time, was helping to reorganize an office that previously, he said

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there was one single person doing this, to an office that was capable of recruiting a large number of physicians each year.

02-00:36:26 Barnaby: Yeah. Well, we had a lot of demands on recruiting sheer numbers, and we did

not want to—you never want to lower your standards just because you've got to—it's a numbers game. I'll be kind here: we had a person who had come up through the ranks who became the physician recruiter for the organization. There was no science to it; it's kind of like an art form. And we didn't keep data, we didn't do follow-up, exit interviews with candidates that we deemed not of our material, or they deemed we weren't. And we restructured and reorganized out of necessity to meet the demand of recruiting. We were growing. We had significant demands for bringing in not only primary care, but some specialists, and recognizing that we needed to reach out and be more proactive in recruiting—you know, sourcing, so to speak—for recruitment. So yeah, we reorganized that.

02-00:37:49 Meeker: Well, where did the ideas come from about how to reorganize and new

methods for recruiting? As opposed to the old "art" of recruiting, it sounds like more of a scientific method of recruiting.

02-00:38:00 Barnaby: Well, it wasn't new ideas. It was taking old ideas and applying them to the

process. Heck, Kaiser Permanente had been recruiting all kinds of people for many, many years, and it was kind of transitioning physician recruiting from a Mom and Pop's to an HR function, and creating an HR function for recruiting physicians. So it wasn't so much these great new ideas; it was about why aren't we applying what we know already to this process, and let that work for us? So frankly, I think it was applying business and common sense to something that we knew how to do in the first place—we just weren't doing it. And we were just backwards, I guess, at some of that.

02-00:39:02 Meeker: Well, do you recall any of the commonsense concepts that you helped institute

that were overlooked previously?

03-00:00:00 Barnaby: Well, follow-up when we had candidates come in, for example. And we didn't

do any follow-up with them when they said no, or they turned us down for another program. So we had no data. We had no idea of why are people saying no to us. Why are they choosing another program? What wasn't appealing about us to them? What turned them off, or what could've we done differently to convince them this was a good place to be?

So again, we had no data collection. We didn't have that kind of follow-up with people. My concept was, you know, you might miss them the first time, but there might be another time, and so why aren't we following up with these

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people and convince them that okay, they've made a decision, but six months from now, they may be looking. Who knows? It may not work out. Maybe they're somebody we want. We were too much after live bodies in a lot of cases, too, because you're behind the recruiting eight ball.

And so I think one of the things we did that was beneficial was we followed up, had a system of follow-up, to find out why aren't you picking Kaiser Permanente? What is it about this organization that you don't like, or what have you heard in your medical school about prepaid group practice? You know, there's a lot of things out there that—misnomers about group practice. And you talk to these young physicians, a lot of them, even though they were told, "You can become a partner," they didn't understand you're an owner. You can, if you're in good standing in two years and are board-eligible, et cetera, you can become a partner in here, and then your earnings will increase, et cetera. They didn't get that concept.

So I think another thing we did in recruitment was we began to sell the program in a different way than we did before. We didn't really sell anything. We said, "Gee, would you like to come be a Kaiser doctor?" And then we'd say, "And these are the things you can't do, and these are the things you can do." But talking to a physician, a young physician twenty-five, twenty-six years old, and starting to say to him or her, "Where do you want to be five, ten, fifteen, twenty years from now? Well, here are the opportunities we can give you. These are the projected earnings that you can have in this program. And by the way, you can have a family and you can have a life, and you don't have to see forty patients a day to make ends meet, et cetera." You know, begin to sell the concept behind the values of a practice were important. We didn't do a lot of that, either.

02-00:42:13 Meeker: So when candidates who declined to accept an offer to pursue a position were

contacted and follow-up was done, what sort of misconceptions about the program did you encounter?

02-00:42:29 Barnaby: Yeah. Well, things like, you know, the quality's no good, or "I've heard

stories—." Or "I got offered more money, more starting money." It was usually either money or issues around quality. You know: "Would I have my own nurse?" To some, it's important. "Do you have a nurse assigned to you?" They want to know their name. "Who is my nurse going to be?" Well, we've got a pool of nurses, so mostly things that, with the right kind of program, you can overcome. There wasn't a lot of depth. And these are young people coming out, and have no idea what they're getting into. They've been laboring through their residency programs, or interns, and that really don't—all they know is they're broke, they've got huge student loans, [laughter] and "I've got to get going with this." And then you start to sell them on education and the

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potential for growth in the program, they're not connected to that. They're in a different place.

02-00:43:52 Meeker: So then it sounds like perhaps those who were connected with that would have

been more likely to accept jobs? Or was something else that influenced those who would have taken it?

02-00:44:05 Barnaby: Yeah. You know, we had second-generation Kaiser doctors—you know, they

know what their mom and dad went through, and they saw the virtues of this. I don't think in medical school there's much that takes place in education around group practice and different forms of practices out there. It's still dominated by the fee-for-service world, or at least it was. And so you're getting a skewed perspective about the world out there. And as I said earlier, we weren't selling who we were and the benefits of group practice. We weren't selling the notion of you don't have to worry about money, you're going to get paid, you don't have to put anything out of pocket, et cetera. And so the educational system wasn't preparing the physicians to come out into the employment world, and we weren't either, early on. We changed that as we began to sophisticate our recruitment system.

02-00:45:16 Meeker: So during this period of time between '82 and '88, I see that you spent six

months in DC?

02-00:49:22 Barnaby: Yeah. I got a call. It's interesting. Strange world of Kaiser Permanente: lo and

behold, I get a call from Dan Wagster, and voices of the past, who was sent to Georgetown to take over the [program there]: he and Marv Goldberg, by the way, the Oregon connection. Let me back up. This was before I left Oregon. Okay? This was my last year in Oregon. So it was before I came to the Medical Group was when we took over Georgetown. And so that would've been '82. So do you want to go there?

02-00:46:37 Meeker: Sure.

02-00:46:38 Barnaby: Okay. I got a call [irrelevant conversation cut] from Wagster, who was sent

from the Northwest along with Marv Goldberg as acting regional manager and acting medical director, to take over the Plan from Georgetown. And I got a call saying, "We need you to come back here. The books are screwed up." That's exactly the words they used. And I said, "Fine. I'll be there in two weeks." They said, "No, no, no. You don't understand. We need you to come tomorrow." I said, "Geez, I can't pack up and leave." I was single at the time, and I had a house, and I had bills, and I was dating Nancy, my wife. But we were dating. And so I said, "I can't possible come for a couple—I've got to get stuff." They said, "No, we really need you to come tomorrow, but if you can't

32

come tomorrow we need you the next day." I said, "Oh, god." So I called her up and said, "Will you move into my house? And I'll leave my checkbook, and I'll leave a list of the bills, and will you pay these for me?" [laughter] And she did.

And so I took off. And it was supposed to be for a month. That was the deal I had: I was going to go there for a month. And I ended up being there for six months. And basically, I went there as the CFO, same job I was doing in Oregon. And yes, the books were screwed up, and we didn't have any skills there. And I brought in a couple of people, actually from Southern California, and that I knew when I was here before, and we kind of redesigned the financial system. Put in a brand new accounting system, GL system, and payroll system, and got the place moving. And stayed six months, five months longer than I thought I would, and then I came back home. And then shortly after that's when I got the call to go to Southern California.

02-00:49:06 Meeker: Did this give you any insight into some of the perils associated with expansion?

02-00:49:14 Barnaby: No. Well, it showed me that the due diligence—because you have another

group practice that you respect does not remove the fact that you have to do your due diligence in acquiring or merging with another organization. It also taught me the lesson of—and I think the sad lesson that a lot of people didn't get—is that you can't maintain two cultures in an organization. Most mergers, if not all, are nothing more than acquisitions, delayed acquisitions, and you can not have an old and a new culture. You have to rid the system of the old as soon as possible. And you know, we didn't. We had it time and time again. What was it called initially? "Kaiser Georgetown." We had to retain some of the old. And so people needed to know they're working for Kaiser Permanente, not Kaiser Georgetown, not Georgetown. And it just delayed the transition a little longer. But they've been, for the most part, successful, and it was a good plan to acquire, it was in the right place in the capitol, and—. But our due diligence could have been a lot better, I think. And that was a lesson learned after. It was "do the homework."

02-00:50:50 Meeker: And the "homework" in this case would have been looking at the books more

closely?

02-00:50:54 Barnaby: Yeah. Systems: looking at their books; looking at their talent pool. Are there

people here that we want to retain, and what do they bring with them? What history and knowledge do they bring with them? We didn't do a lot of that. It was kind of like a handshake, and overnight, and we're here. You know, just the idea of scrambling all of a sudden after being there a month or a month and a half, finding out things are screwed up. And we had to put in our whole rate system. You know, here we are marketing the Health Plan now, and we

33

had no rates. I brought some people in to create our rates, the first rates that we were offering, because we were sitting there like dummies without the rate structures, understanding what we should be charging.

02-00:51:43 Meeker: How were the rates first arrived at, then?

02-00:51:46 Barnaby: For us?

02-00:51:47 Meeker: Yeah.

02-00:51:48 Barnaby: We took the historical data; I put together the budget, the first budget which is

for the new organization, looked at what revenues we needed, and then that translates into what the rate structure needs to be. And then you have to create all the levels of rates—Medicare/non-Medicare, and loaded/non-loaded rates—that go into our structures. By group; by coverage—

02-00:52:16 Meeker: That can be a possibly difficult scenario, especially if you come up with rates

that, for instance, that particularly community won't bear.

02-00:52:28 Barnaby: That's right. Or that are wrong in the first place, and aren't going to allow you

to meet your financial targets. That's why people doing those jobs get old fast, because it's a crapshoot. And usually we have enough historical data to at least create some amount of certainty of what we're doing is within the realm of reasonableness. There, because their systems were pretty well screwed up, we didn't have that, so you were flying by the seat of your pants. You know, good experienced people got us through, and we did okay. But it was flying blind, and there was a lot of sweat on our foreheads, [laughter] thinking, "Holy cow! Are we going to pull this thing off? I mean, we literally had no rates to offer when we were going to the marketplace, because the data we had been given by Georgetown was not accurate.

02-00:53:30 Meeker: Well, and that was also a money-losing system, so their rates would not have

been ideal.

02-00:53:35 Barnaby: Well, you know, the beauty is it wasn't a money-losing system. They were just

screwed up they didn't know if they were making money or not.

02-00:53:43 Meeker: Oh, really?

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02-00:53:44 Barnaby: We turned that corner the first year there, and it became profitable. It has since

had its ups and downs, but I used to say I wish you could fall into a deal like this every year, because they would have never known whether they were making money. Their accounting systems were screwed up, it was impossible to tell. And when we straightened them up, so to speak, and got them on the right track, it was a money-making operation. You know, we met our targets—put it that way. And so sometimes you luck into things. It hasn't anything to do with skill—you just luck into it. And that was one of the cases where we were probably as lucky as we were good at doing it.

[End Audio File 2]

[Begin Audio File 3 barnaby_richard3_05-07-08.mp3]

03-00:00:05 Meeker: So it's November of 1988, and you're continuing working in Southern

California.

03-00:00:11 Barnaby: Yeah. And reasonably happy. I really have had and have great respect for

Frank Murray. He is a wonderful human being, and I enjoyed working for him. And he gave me a lot of room, and I appreciated him as a boss. On the other hand—and I'll give you an interesting story about Frank a little later on, if you're interested in it, on how things come around. But I also knew that, as a non-physician, I had no place to go in the Medical Group. I mean, this is it. And not being ready at that time to say, "This is as far as I ever want to go," I began to wonder what—and I had those conversations with Frank: not being a physician, being at the highest civilian rank in the organization [laughter] there is, what next? And thinking although I was happy with the job, it was challenging, what's next? I had no plans; didn't talk to anybody; didn't really expect to go anywhere right away. But Frank called me. In fact, we were out in the Valley—Panorama City, I think, in a meeting—and he called me aside, and he said, "I just got a call from Jim Vohs, and they want to talk to you about going to North Carolina." And I said, "Oh, okay."

And so I flew up to Oakland the next day, met with Dave Pockell and Jim Vohs. And interesting along the way: I flew into Oakland, got off the airplane, driving on the freeway—what, the 880 or something like that?—and some lady hit me, broadsided me in the car, [laughter] and drove me into the wall. A retaining wall. And so I was about half an hour late getting to the meeting with Vohs. A great start, right? And it totaled the car. And so that was an interesting sidebar to that.

Anyway, they talked to me about going to North Carolina. North Carolina was not meeting its financial results.

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03-00:03:00 Meeker: When had that been established? That was the early eighties? Is that

somewhere thereabouts?

03-00:03:08 Barnaby: I want to say seventy—oh, golly. '85?

03-00:03:18 Meeker: Okay. So it had only been around for a few years, then?

03-00:03:20 Barnaby: It had been only around a few years, and was a startup. Didn't acquire it from

anybody. When we went in, it was a startup. Asked, by the way, by the governor of the state of North Carolina to come in. Was very interested in this form of delivery of healthcare. Although the citizens weren't, [laughter] he was, and so at the request of I think Governor Hill at the time, laid the groundwork. We said it was someplace we wanted to be. A great area of the country. But not meeting our financial forecasts, losing money, and basically a dispirited group of people. Floundering; didn't know how to get out of the paper bag.

03-00:04:23 Meeker: What did you attribute that to, I guess the lack of esprit de corps amongst—it

sounds like both the Medical Group and Health Plan in the region?

03-00:04:35 Barnaby: We had young people who probably weren’t up to the task yet. If they had the

kind of mentorship and experience, it might have been different. But we took a handful of people that probably weren't quite ready for the job and gave them an impossible task to do. And as a result, they didn't do well. I mean, pretty predictable. They were good people; there was nothing wrong with them. They just weren't ready for some of the things to do. We had a young medical director that came out—well, middle-aged, I guess—came out of San Diego, Larry Oates. I knew Larry very well before he went from—you know, he was the area medical director in San Diego. He was a procrastinator and could not make hard decisions. Lovely guy; loved him. He's retired now, and I think living in Columbus, Ohio.

It was that kind of thing: people weren't making the kind of hard decisions that you need to make in a startup. We had very, very bad physician utilization. Our lengths of stay in our hospitals were horrendous. Our discharge planning was nonexistent, you know? And we were admitting people because of the South, you know, there's an expectation that you go in the hospital for certain things that in California, you don't even get to—you're lucky you can go to an outpatient clinic. And they want to be hospitalized overnight for certain things. You know, if you get a vasectomy in North Carolina, you have a two-day stay, okay, in the hospital. Here, it's snip-snip in the clinic, and you're gone. It's just a different mentality. And there were a lot of fairly large employers. The

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Research Triangle had IBM and Northern Telcom, and a number of high-tech companies that had large employee bases, so the potential was there.

We didn't really lift the kind of expertise out of the program to go to a unique startup. We had a regional manager that was one of the nicest guys you ever want to meet, but he was new to the program, and he was basically out of the military. And so it was kind of a bit of a disaster. Not a lot of discipline in the region. Got a lot of esprit de corps. You know: "We're great! We're new! We're going to take." But no knockout punch. Nothing. No substance to it.

So I don't know. I got asked to go there, and it was kind of a unique situation, because they did not want to remove the regional manager, which you probably typically would do in a situation where you're not meeting your targets. And so they asked me to go there as associate regional manager, which I wasn't really fond of.

03-00:08:28 Meeker: This seems like an opportunity that would've been really easy to turn down, I

mean, considering that you are being brought in in an ambiguous status to do a job that must have been sort of quite difficult.

03-00:08:50 Barnaby: Yeah. I wasn't bright enough to say no. And again, it was a challenge.

03-00:08:59 Meeker: What were they asking you to do?

03-00:09:00 Barnaby: Basically, to go in and turn the region around without destroying the regional

manager.

03-00:09:08 Meeker: But I mean, did they give you a sense of—I guess how did you learn about

what specifically needed to be done in order to turn around the region?

03-00:09:21 Barnaby: I showed up one day, and it pretty much stuck out [laughter] like a sore thumb

what was wrong. We didn't have some of the right people in the right places. We didn't have the discipline. We weren't making decisions. We weren't controlling the utilization. You could see it. I mean, just experience from being in an organization that seemed to run like clockwork—you know, with its speed bumps and so on. It was pretty blatant, and I mean, an idiot could have seen the problems. I mean, I don't want to badmouth anybody, but they were right there for the picking. We didn't have a long-range capital program; people weren't sticking with their budgets; they weren't disciplined. Nobody was saying, "No, you can't have this." Somebody was saying, "Well, you know, Oakland will let us do that."

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So we weren't applying some of the old principles of how to run a business, the foundations of a business. It was pretty clear, and I was ready to move after six or so years of being with the Medical Group, so I said yeah, I'll take a crack at it. But I need—the one thing I told them is I need the authority to act. If my hands are tied, then it ain't going to work. This is a disaster in the making.

Well, it was a compromise. They said, "You can do everything you need to do, but you're going to have to figure out how to do it. We're going to give you the authority, but you can't usurp the regional manager position. You have to find a way to beg, borrow, and get it done." I thought that sounded like fun. I mean, it was a challenge, and I was thinking it was time for the next thing to do, so—. But it was miserable. [laughter] It was "How not to step on the toes of this guy, and respect his feelings and authority, and how to get the thing done."

But you know what? The bottom line is, we turned the corner. That second year, we were profitable, and that hadn't happened before in the five or six years that the program had been there. So it was doable. We changed out people. We inserted a certain level of discipline and planning into the process. There was no real capital planning, and it was just helter-skelter. And so there wasn't any magic to it: it was really just applying the good old things that worked in our program, and putting it in place there, and holding people's feet to the fire.

03-00:12:27 Meeker: Analysts have looked at this North Carolina—I was going to call it

"experiment," but it was longer than an experiment would have been. And they've identified a whole variety of things, including the expense associated with farming out a lot of the work to local physicians and out-of-system hospitals, and so forth.

03-00:12:53 Barnaby: That's part of it. That's part of it, because Raleigh is a relatively small—

remember, the only reason Raleigh is what it is is because it's the capital of North Carolina. Charlotte is a much more booming, larger city.

03-00:13:09 Meeker: Well, the Health Plan went to Charlotte, too, correct?

03-00:13:11 Barnaby: Well, we did later. But not initially. But I mean, Raleigh is the capital. It's

where the governor is, and he asked us to come, and so it's a natural. If I would've looked back, I'd probably have gone to Charlotte first, and then—.

But so the key here is Raleigh is a relatively small community. There's only so many hospitals. Yes, we're not a hospital-based region, so we have to go in the market, open marketplace, and how do you do that through contracts and

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negotiating, and use your leverage? And the community was not necessarily open to all that kind of stuff, so although our contracts got better, initially we didn't even have a contract specialist on board. And then we finally brought someone on, who went out and that's all they did was negotiate contracts for outside service.

But we were essentially providing primary care and negotiating everything else, including hospital beds and some specialty care. So it is a more expensive model, because you have less control over what happens. Combining that with not having a utilization program, we didn't have physicians rounding in the hospital like they should've, getting patients out like we do in California, at least at that time. So not only were we at the mercy of the community, but we were at the mercy of our own selves in terms of we weren't doing the kinds of things we knew how to do in that community. I don't know what analysts have said, but we could've made that work if we would've had the right discipline.

03-00:15:08 Meeker: So you were in California and Northwest, two regions that historically have

basically existed ever since the beginning of the program. What did this Health Plan/Medical Group relationship look like in a new program area, in a new region?

03-00:15:29 Barnaby: It was interesting.

03-00:15:31 Meeker: I mean, what was the dynamic like? Was it different?

03-00:15:35 Barnaby: The dynamic was that on the surface, it was a very friendly relationship

between the Medical Group and the Health Plan, the regional manager and the medical director. You know: we're pioneers; we're out here on the front of mankind, and we're new and it's exciting. That was on the surface. And underneath the surface it was, "He won't do this." "He won't do that." "He won't take time to do this." "He doesn't say no." I mean, it was these underlying things. But nobody wanted to offend the other person. Nobody wanted to stand up and say, "You SOB, you need to do this, and you need to do it now, or you're going to drive us into the ground, and there's no two ways about it." Everybody was on their tiptoes walking around. You know, it was like of like, "Come on down to the seance, we love each other." [laughter]

03-00:16:50 Meeker: So it sort of sounds like, from what you're saying, there was actually an

absence of this productive tension in North Carolina that existed in a place like Southern California?

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03-00:16:59 Barnaby: At that moment. It soon changed. But at that moment, yes, it was, you know,

"We all love each other," so I'd almost describe it like a hippie movement. I mean, we were all dancing to the same tune, and underneath, they were bleeding to death, and nobody knows quite what to do. The first week I was there, I sat in capital planning meetings, and these people were sitting there and making these grandiose plans like there wasn't a problem in the world. And I said, "Wake up! You don't have any money! Nobody's going to give you any money! We can't do this. We have to start cutting this plan out, and cut it down." "Wow! Geez! We can't do that!" [laughter] I said, "Yes, you've got to do it. I mean, your livelihood depends on this."

And so there was just a lack of discipline. They were kind of like, on another solar system. It was strange. And as I say, I knew the people there from the program. A lot of them came in from other regions, not ready for some of the challenges, but they were like, they weren't in synch with anything. And here I am; after a week there, I'm saying, "Holy cow! What did I get myself into?" Because this may not be doable. It was. The bottom line: it was. We had to make some changes, and we had to create some discipline. The interested part was when Harper Gaston got involved and changed the dynamics of things.

03-00:18:47 Meeker: In what way?

03-00:18:51 Barnaby: Well, I don't know if you met Harper Gaston, but he's the most—

03-00:18:56 Meeker: I know people have described him as a "Southern gentlemen," I think, is—.

03-00:19:01 Barnaby: Well, that's one way of describing Harper. I mean, Harper is a—yes, he is a

Southern gentleman. As a matter of fact, I've been to his plantation, and he is not only southern, but deeply Southern. He had a plantation called "Twin Oaks." He even had the slave house restored to its original—just kind of show you. I mean, he is an interesting fellow. And he was both good and bad for what happened.

But Harper was running Georgia, another startup region. And the Medical Group, I believe the Medical Group out of desperation recruited him to come to save North Carolina. Jay Crosson had been sent to North Carolina. He had recently been not reelected in Northern California. I think he was an associate medical director or something. Was sent to North Carolina by—I don't know if Harry Caulfield—

03-00:20:28 Meeker: That would've been maybe Bruce Sams at that time.

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03-00:20:32 Barnaby: Maybe it was Bruce. Yeah, Bruce. And Jay came, spent a month; said,

"There's no problem here. This place can make it. All you've got to do is build a hospital." Wrote the report and left. If it was that easy.

03-00:20:52 Meeker: What'd you think of that analysis?

03-00:20:54 Barnaby: Well, of course not. You put $200 million into a hospital that we can fill ten

beds? I mean, our best bet was in the community. And I guess I would support that by the fact that we're still in Georgia today, and still don't own a hospital, and we compete nicely in the community.

03-00:21:16 Meeker: So was Gaston brought to North Carolina, or Georgia?

03-00:21:19 Barnaby: No, he was in Georgia, and there was kind of a melting of the Medical Group

leadership. He was brought in to oversee the Medical Group.

03-00:21:31 Meeker: Was there this sense about him that since he was a Southerner, he would be

able to make things happen that imports wouldn't be able to?

03-00:21:40 Barnaby: Well, Harper was only a Southerner when he was in the South. He had been in

Northern California practicing for a number of years, and he came out of Northern California when he went to Georgia. And so Harper could be a lot of things. [laughter] A Southerner was one of them.

But Harper was—say this the right way: he was both welcomed and not welcomed in the region. I mean, it created a hostility around Georgia taking over North Carolina on the Medical Group side. It kind of disenfranchised the medical director as the leader. And Harper would come in, stay for two days, leave, and come back a week later. And so you never quite knew whether—is he in North Carolina, or is in he in Georgia, you know? And so in one sense, there was, "Well, good—we're getting help." And then the next sense, after a little while: "And what is that? And what's it going to change?" I guess it injected hope into it, but it was very disruptive. It didn't work well. It didn't last long, and it didn't work well. And it might've infused some hope in that the program really cares, and they're trying to do something here. But the impact was minimal, I think, in terms of long-term stability. I just don't think it provided the kind of confidence to people—was Harper in, or was he out, and were we going to be taken over by Georgia? You know, what's the message here? And when left to the imagination, people conjure up all kinds of evil things.

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So I thought it was okay. I thought it was okay that we had a senior leader in with a relatively naïve leader. Larry was kind of naïve at running—he was a nice guy, but he couldn't say no, and he really couldn't make decisions. And then we had another change. He left, and here we were again. And then we continued to make mistakes at bringing people in. I remember having a conversation with Larry Oates?, and we brought a physician in actually from Oregon who was—he was a good physician, but he was problematic in his behavior. And I said, "Geez, Larry, why in the world would you bring in this physician when his own region was trying to get rid of him?" And his comment was, "Desperate men do desperate things." [laughter] And so that's where we are. He finally clarified it. So there was a level of desperation around survivability.

03-00:25:47 Meeker: So come 1990, then, are you looking to get out of North Carolina, or—?

03-00:25:52 Barnaby: No, no! No, not really. I'd only been there two years, and we were making

progress. We had our first year that we met our financial targets. I had hope. Struggling to grow. Struggling to get the concept of prepaid group practice over to the population. It's an old boys kind of community, the old medical guard. They're against it, and hard-selling of the concept. Starting to develop good people. Doing some good things. Going to Charlotte, starting to build our own facilities rather than lease them. Some of the right things are happening. I think the program office is starting to get confidence in our ability to manage. The relationship between Al Washington, the regional manager, and myself was a good one, and we learned to manage around—you know, when I needed to say to Al, you know, "Al, we're going to do this—get on board," and do it privately so not to usurp his authority.

And then I got a call that Georgia was in trouble—the same kind of stuff. Interesting enough, the guy that was the regional manager over there was Ed Carlson, was a very nice guy. Ed came out of Ohio. But he was another one that could never say no. I mean, we seem to have people that couldn't make the decisions, and so—.

03-00:27:52 Meeker: When you say, "Could never say no"—and you've said it quite a few times

now—what do you mean? I mean, is there like, an overall meaning to that? A universal meaning to that?

03-00:28:05 Barnaby: Yeah. You know: could never say no to more people. Could never say no to

taking a hard line and saying, you know, "We've got to make do with what we have."

03-00:28:20 Meeker: So in essence, the Medical Groups are wanting something, and—?

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03-00:28:26 Barnaby: Anybody. Not just Medical Groups. Health Plan. I mean, when you avoid

confrontation, basically you can't manage in our program. There is always a tension around demand and the reality of what can be done, and you need to stand up and say, you know, "This is the way we're going to do it." And it's a difference between a handwringer and someone who does something, even if they do it wrong. If you sit and wring your hands all the time and ponder, "Well, what do I do? What will be the outcome here?" rather than saying, "Okay, I've got to do something, so even if I do something wrong, it's going to say at least I'm doing something." It was that kind of thing, and I don't know. You know, this is what I've been told.

I got a call from Wayne Moon: do you want to go to Georgia? And I said sure. And actually, I felt pretty good, because we were on the right track in North Carolina.

03-00:29:30 Meeker: And this would have been to be regional manager?

03-00:29:32 Barnaby: Yes. So I went there. Yeah.

03-00:29:38 Meeker: And can you describe some of the key elements of your experience there

while in Georgia? And this is also just about the time that Program Office is going through some big changes with the retirement of Vohs, correct?

03-00:29:52 Barnaby: Yes.

03-00:29:54 Meeker: Well, that's something that happens over a couple of years, it seems like.

03-00:29:57 Barnaby: Well, I was there when it all happened. You know, it's like the employee that

quits but doesn't leave. That was kind of what happened with Jim. And I give credit to Dave Lawrence, because he didn't do this, and I hope I did the same thing. Jim stayed on the board after he retired as CEO. That doesn't work well in our organization. There seems to be resentment, and the people—there's a process that takes place as part of being in Kaiser Permanente where you can't ever let go. I mean, it's like they used to say for the Dodgers, you know? They used to say if you cut Tommy Lasorda open, he'd bleed blue. It's the same with Kaiser: you know, if you cut me open, I'll bleed Kaiser blue.

And Jim was a very interesting guy who did a lot of things for this program, but for all of us, there's a time to move on. Things change, and Jim's view of the world was very set: the world according to Jim Vohs—

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03-00:31:19 Meeker: Can you give a sense of what that was? What the world according to Jim Vohs

was?

03-00:31:25 Barnaby: It was the status quo. The world, to Jim, was the way we'd been doing things

for sixty years. And it's been good enough for sixty years; it ought to be good enough for another sixty. And a lot of us said the world's changing around us. The employees are demanding more. The government's demanding more. We need to do things faster. We need to respond quicker in our marketplaces. We need to have alternate products. We can't take the same old plain vanilla thing out and keep shoving it in people's faces and saying, "We'll do anything you want, as long as you do it the Kaiser way." And that's kind of how we ran the business. You know, we would tell employers, "We know better than you. Here's what you really need to do." And employers were telling us, "No. We want—." And this still exists a lot to this day, and I can give you examples of that.

And so there was this tension on the board. Dave Lawrence came in, and Jim is chairman emeritus, and Dave is trying to run the board meeting, and there's just tension. And I can remember, I made a presentation to the board about a facility we were building in Georgia. And typically, when we build an outpatient clinic, from the start of planning it took us thirty-six months from the start of planning to bring that facility online. And my team of people, we sat and planned, along with the Medical Group, and we brought a facility in in eighteen months, from planning to opening the doors. And I was at a board meeting presenting how we did that. And I guess being a little naïve or something, I said, among other things, "We removed the old ways of doing it where we've got everybody involved, we've got all the regional managers involved in picking colors and artwork, and all the things that slowed the process down. We had a team of people who put together the planning process, and we had a handful of physicians involved, and we made these decisions, and duh-duh, duh-duh, duh-duh—." And he rolled his eyes, got up, and left the room. [laughter] Because he personalized it, you know? Well, he heard me saying, "Well, Jim Vohs used to take thirty-six months to build it, and I'm building it—." Well, that wasn't the case, and—.

But the world had changed, and we had to change the way we were planning facilities. In construction, time is money. And we were sitting there, and the regional manager would have to approve every single piece of artwork that was being bought for the clinic. Every color, every fabric had to be run by—you know, it was crazy. And we changed all that. And it was just that he kept hearing about change, and I think it bothered him. And he personally didn't want it to change. He loved the program. And so it was hard for him, and it showed in board meetings. I mean, he would do things like that. And so basically, a board member was selected to talk to him and ask him to retire.

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03-00:35:10 Meeker: Was there a particular issue around which he was asked to retire?

03-00:35:19 Barnaby: Not that I can recall. I think it was a series of things where he just was having

a hard time listening to the things that needed to happen in the program to change. We were in periods where the competition was becoming more acute, rate sensitivity—you know, a number of things—and we were looking to change things. And, you know, it was the old-fashioned way or no way at all, and most of us were saying, "That won't work." And he was getting as much pressure, I think, from the external board members as internal. So it was kind of a sad thing to see happen, because I think Jim Vohs was a great leader in the program, but it's also an example of don't overstay your welcome. There's a time when you all leave, and that's why I said I commend Dave. Dave, when he left, he left, basically. I mean, he maintained an office and that, but he didn't stay on the board.

03-00:36:27 Meeker: Well, I know at some point in the late 1990s, they actually changed the bylaws

of the board to prevent the CEO from serving on the board after their term.

03-00:36:35 Barnaby: Yeah. And I think that's part of it, because how many bosses can—it's like in

the old days, when Ray Kay was the medical director of Southern California Permanente Medical Group. One day a week, he would go to Fontana, where Ray started in Fontana. There was a medical director there by the name of—what was his name? Al Sanborn was the area medical director. On every Thursday, once a week, Ray Kay would show up at Fontana. Now, on that day, who was the medical director at Fontana?

03-00:37:17 Meeker: Ray Kay.

03-00:37:18 Barnaby: Yeah. Exactly. And so just a good lesson that you can have two sitting at the

table, and the senior one not being the boss.

03-00:37:30 Meeker: Well, can you tell me a little bit about the transition from Vohs to Lawrence,

because I mean, I understand that the two main candidates were Lawrence and Wayne Moon, and they were both internal candidates. And then of course, the board decided, but no one's really been able to offer a clear explanation to me why it was that it seemed like it was sort of a split decision, and Moon was made president, and Lawrence was, I guess initially, made something like COO. And then there was this sort of period of transition, until at some point—I think it was '92 or '93 that Lawrence assumed the position of CEO.

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03-00:38:15 Barnaby: Yes. It was kind of weird and we all knew from the sidelines that Dave and

Wayne were the two heir apparents. As folklore would have it, anyway, Jim Vohs was supporting Wayne Moon. That's what I've been told.

And Dave was this—and I knew Dave. I met Dave in the Northwest region, when he was hired by Marv Goldberg. And there was a lot of controversy about Dave coming on board in the Northwest, because he was brought on as the area medical director for Bess Kaiser area. And Dave was not a practicing physician. He was public health. He didn’t practice. And there was a lot of controversy about how can you bring a guy in that doesn't practice medicine? It was almost like the same issues—that I wasn't a physician, with the Medical Group. But Marv was a very persuasive guy; brought Dave in, and Dave actually did dabble a little in practice. But he was kind of a planner, a guy that looked to the future. And I thought to myself, "Well, this is pretty interesting. I mean, it's something I might have not thought of, but an interesting approach to this." And I got to know Dave. And then I left, and then really didn't come back into contact with Dave again until—at this time when he was one of the candidates for the job.

And I think we were all betting on Wayne Moon having the inside track, mostly because we felt that with Jim supporting Wayne, he's persuasive at the board. And I can't tell you the reasons, but somehow, when the smoke came out the chimney and it cleared, Dave Lawrence was the winner. And I think we were all taken by surprise, almost stunned by the decision. But maybe not entirely unexpected, because I personally have felt that there is—we are a healthcare organization, and if—something is to be said about having a physician running a healthcare organization. And so I wasn't totally surprised by it. What was surprising was Dave actually came into our program from the Northwest, became the regional manager in Northern California, and like in any senior executive, there were people that loved him, and people that hated him. And Dave had a reputation there of being another guy that couldn't say no, you know? And so it was a little surprising when all this came, but when you stepped back a little bit and think about it, okay, it began to make sense why they made this choice. And I never knew who was for or who was against. And then Wayne shortly thereafter left, because he wanted to be CEO somewhere. And then did: he went to Blue Shield.

And so I can't really tell you the reasons, but it may have been part and parcel the board going against Jim Vohs a little bit, because Wayne was, I think, clearly his choice, and trying to make a statement that way. I mean, Dave had a lot of friends. I know a lot of people—he was a very persuasive guy. And so lacking the experience didn't seem to matter too much, and he jumped in. But there was that transition of Dave was the—and I could be wrong here, maybe: I thought Dave was the CEO but not chairman of the board, and Jim retained that, and then transitioned out, I'll say in a year or eighteen months, or something like that.

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03-00:43:11 Meeker: Yeah, I think that's correct.

03-00:43:12 Barnaby: And Dave became both CEO and chairman. Wayne was the COO before he

left.

03-00:43:21 Meeker: And president, too, or something like that.

03-00:43:24 Barnaby: Yeah. Exactly the same job I had. I replaced Wayne when Wayne left. So it

was president and COO. And so there was that rivalry there, and I think we were all a little shocked. And on the other hand, when you step back and say, "Oh, there's some things that make sense here."

03-00:43:43 Meeker: Well, what made sense in that arrangement?

03-00:43:45 Barnaby: What made sense in it is—.

03-00:43:48 Meeker: Yeah, particularly the dual presence of Lawrence and Moon at the same time.

03-00:43:52 Barnaby: Oh, of Lawrence and Moon?

03-00:43:55 Meeker: Yeah. I mean, in other words, with Lawrence at CEO and Moon at president?

Considering that they had previously been competitors for the same position?

03-00:44:05 Barnaby: Well, yeah, I won't call them "adversaries," but they were competing elements.

I think most of it looked—we kind of knew Wayne was going to leave. And so I think it was maintaining the status quo for a while. Dave needed to get his feet wet, jump in, and start transitioning from both everyday to the new leadership.

03-00:44:33 Meeker: So you think it was understood widely as a transitional process?

03-00:00:00 Barnaby: Yeah, I think that underlying all this was the fact that they're not going to have

both there for maybe for six months, but Wayne's going to probably leave. I mean, he made it clear he wanted to be CEO—and Wayne and I are personal friends. I've known Wayne for many, many years—when he was a hospital administrator. And so I've known him forever. And we were personal friends on top of it.

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03-00:45:13 Meeker: You mentioned that when Lawrence became CEO, he did start to speak about

change, particularly—and this notion of Vohs being on the board, and not liking some of the new ideas that he was hearing? When did Lawrence's agenda become apparent, and what were some of the key elements of that agenda that became apparent?

03-00:45:53 Barnaby: Well, first of all, the first thing that takes place in Kaiser Permanente when a

new person is appointed like this is, "Well, how long is it going to take this turkey to fail?" It's kind of a doomsday side effect, and, "God, how could they pick this guy?" And so on and so forth. And Dave is a very charming guy. He is a very persuasive, charming guy. It's his personality. And he is a planner. He is not an operations guy; he doesn't pretend to be. He's a planner. And so it took a while for Dave to decide what he wanted to do, and how he wanted to do it. It was almost like, okay, Dave Lawrence is appointed—where is Dave? [laughter] You know? And there's this transition taking place; the whole shakeout of Wayne's there, and what's going to happen there? We've got pretty two dynamic guys. Jim Vohs is still sitting at the table, and how is this all going to work?

So we all wondered what's going to happen here, and where is the program going to go? And Dave was kind of underground doing his thing, starting to develop, I think, a plan to go forward. You know, it wasn't like we sat there every day thinking, "What's next?" because we all had things to do. But it was kind of wonderment. Is anything going to change? Is it the same old same-old? Will Dave bring a new direction to the program? Where is Wayne going, and when is that foot going to drop, and what's Jim Vohs going to do? And so I think there was a period of six months where all this stuff kind of—you know, it was the coffee break talk.

And I think Dave kind of emerged with a couple things. One, he did talk a lot about evidence-based medicine, and two, he started to bring McKinsey in to begin looking at changing the organization, and questioning some of our core values as an organization, and the things we were doing. And I don't know how much you've gotten into the McKinsey era.

03-00:48:39 Meeker: Well, it's certainly been brought up in almost every interview. When you say

"evidence-based medicine," I've seen that phrase a few times. I mostly saw the phrase "total quality management." Is that more of what Dave was bringing in?

03-00:48:53 Barnaby: Yeah, that's probably a better term. And there were two things. Let's say total

quality management and quality of care. I mean, these were Dave's agendas, and this was up his alley. It's something he did. Dave knew that the business had to run and produce financial results to stay in business, but that's not where he wanted to focus his time on. And that's one of the reasons that I

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think he brought me on board at the time, because he didn't want to be involved in operations as much. You know, he wanted to dabble, but he wanted to dabble on his terms. Dave was—is; I keep saying "was"—his leadership was outwardly focused. He was very involved in the community. He got involved in a lot of boards outside of Kaiser. He got involved with an organization in Singapore, a medical group there, and traveled a lot to Singapore. He was very outwardly focused, and particularly on quality issues. And I'm sure you're going to get a whole bunch of this from Dave when you talk to him.

03-00:50:13 Meeker: Sure. So at this point in time, you were in Georgia until the end of 1993. And

then it sounds like you were brought back to California?

03-00:50:24 Barnaby: Yeah. Dave called me up one day and said—you know, I was the regional

manager there, and I was involved in a lot of meetings as Dave was transitioning. You know, the regional managers would be called in, and we'd have to report on our progress in our region and so on, and he'd make trips to the region. We had subsidiary boards, for example. So Dave would come to subsidiary board meetings, and then he'd spend a day meeting with management and getting to know people.

And so I knew Dave when he was in the Northwest, so I wasn't a stranger to Dave. And he called me up and asked me—he just wanted to spend a day with me. And so I met him at his hotel, and he talked to me just kind of like we're talking, only about what I did and where I was raised, and all that. I did that, had that day with him, and then he called me up and asked me if I was interested in coming back to Oakland. Actually, he said I could stay in Atlanta if I wanted to, but he'd prefer to have me come to Oakland as an executive vice president.

So at the time, we had three executive vice presidents. I was in charge of all the non-California-based regions, and Hugh Jones and Dave Pockell were in charge of Northern and Southern California. And I was in charge of everything outside of California.

03-00:52:016 Meeker: So before you were brought to California, I know there wasn't much time

when you were in Georgia and when Lawrence was CEO. But from the perspective of a regional manager, I guess how did you experience and what did you see of the new regime reforms that were—or programs that were going to be pursued? So changes, or addressing quality issues, and then also McKinsey. I'm not sure if McKinsey had started by 1993 or not. They had?

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03-00:52:44 Barnaby: You know, the truthful answer is zero. I didn't see anything, because it took a

while for those statements to be made, and frankly, we were so immersed in getting Georgia on the right track that we weren't often looking to the corporate office. You know, every so often, you'd sit around and say, "What the heck's going on up there in Oakland?" But we were really focused, and we were going through a transition from Harper Gaston, who was removed from Georgia, and we brought in a new medical director, Richard Rodriguez, from Southern California. So I was involved in the transition of new Medical Group leadership in Georgia. We were looking at getting our finances in the right order. And so just occasionally, we'd peek over our shoulders and say, "What's going on in Oakland?"

But we didn't have a lot of time for that, and there was a lot of local issues that we were trying to deal with. And Georgia, again, was a region that had a lot of upward potential—it just wasn't realizing it. And it didn't take us long to get our program into the black there, and chug it along. So I really wasn't focused too much on—and I was actually a bit—you know, we all wondered what was going to happen, especially with Jim kind of stepping down, and where was Wayne going? And I knew Wayne personally. But we didn't really see any major shifts in the organization in terms of impact by Dave and the news leadership. And most of the leadership in the Program Office was the same old—you know, there wasn't any major, sweeping changes in the Ericksons or the Palmers, or the this or the that. They were the same fundamental people, there wasn't a lot going on that we saw from the new frontier.

[End Audio File 3]

[Begin Audio File 4 barnaby_richard4_05-07-08.mp3]

04-00:00:04 Meeker: So can you describe for me this new role as the executive vice president, and

the degree to which it differed, if all, from being a regional manager? Because your colleagues, Pockell and Jones, were in essence regional managers.

04-00:00:24 Barnaby: Exactly. Well, they were regional managers and executive vice presidents, and

I was a regional manager at large, I don't know how you'd describe it.

Let me just wrap up a comment. One concern we had as managers in the program was—or "wonderment;" I shouldn't say "concern"—was when Dave Lawrence picked a direction, would he stay focused on that single direction? Would he create single purpose to move ahead, or was it going to be the plan of the week? You know: this week it's this; next week, it's that. So that was one of the questions that I recall going through all our heads as this transition started to take place. And I think this is something that might have haunted

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Dave in his career: is this the flavor of the month, or are we going to see this thing through?

04-00:01:21 Meeker: What's an example of a "flavor of the month?" Something that was an idea

raised that perhaps didn't get pursued?

04-00:01:30 Barnaby: I'm trying to think of an exact example. We used to have these Monday

morning meetings, and Dave is infamous for his flipcharting. He does the flipchart in there, and so it's kind of this week, quality is the thing that we're going to focus on, and it's the most important thing we can do to create credibility in this program, et cetera, et cetera, et cetera. And then next week, he'd be talking about a whole different subject, and so we'd say to ourselves, "Well, did that go away, or is that still on the agenda?" And we had sessions where this week, should we stay not-for-profit, or should we convert to a for-profit? We had a year-long discussion where that was the main thing we wanted to focus on. Forget quality. Is it worth converting this program to a for-profit? And we concluded at the end of a year that no, we aren't going to do it.

04-00:02:39 Meeker: Why was that question brought up to begin with?

04-00:02:41 Barnaby: Sources of capital. As a not-for-profit, you have limited access to capital—

plenty of it, but limited. Whereas as a for-profit, you can sell your soul for capital, so to speak. And my conclusion at the end of it, and I think the others' conclusion was, there's only thing we'd benefit, and that's we'd all get rich, and nothing else would change. So it wasn't worth getting rich for, and destroying the principles. But we spent a year.

And so one time it's quality; one time, it's for-profit/not-for-profit. And so it was a little bit of what track are we on here? Are we going to stay the course? So that's one example I can think of.

04-00:03:36 Meeker: With this for-profit thing—because I've seen this brought up before—I guess

what was the perceived need of a capital infusion at that point in time?

04-00:03:51 Barnaby: Expansion. Facilities.

04-00:03:54 Meeker: So going profit would enable the organization to expand more rapidly?

04-00:04:00 Barnaby: It would. It would create that possibility, yeah. And, you know, expansion is a

whole separate subject, and one that we didn't do well, and one that we never recognized the right way to finance expansion. And it's something that stuck

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in the craw of every manager that was involved in expansion to this day, if you can find any of them. There was no recognition that a startup—and so from day one, every region was expected to produce favorable financial results, and you couldn't do it. There were startup costs, market entry costs that—you know? And no one in the program would forgive it, and California was not receptive to funding. That's where the money came from: out of the California operations. So that's a whole—the process of expansion is an interesting one also that probably deserves some time at some point. Because we didn't do it well.

04-00:05:19 Meeker: That's certainly been touched upon in, I think, every other interview I've done,

so it's covered. And I think we can talk about it some more, but I want you to tell me a little more about the period in which you served as the executive vice president and dealt with the regions outside of California. I mean, this might be a good opportunity to talk about expansion, because they would have been under your purview for roughly two and a half years.

04-00:05:43 Barnaby: Yeah. Well, as you said, we had a regional manager in California—one in

Northern and Southern California—and then we had everyone else on the frontier. And California took a dim view of everyone else, and that all they do is cost us money. Why do we need them? Three-quarters of our membership resides in California. We could never leave California and do equally as well, so what is all this business of it's draining resources; it's draining financial resources, talent, et cetera. And so why are we doing this? So California was never a big champion of expansion, as far as I could tell. They tolerated it.

04-00:06:38 Meeker: When you say "California," you are referring more to the Medical Groups in

California than you are to the regional managers?

04-00:06:44 Barnaby: No, even Health Plan. You know, any time you expand your operation, there's

some amount of excitement that comes about. But it's short-lived until people start to realize that my hard work is paying for this, and those people aren't making it. And so if you've got to think where's the money come from if the region isn't making it? It's coming from California, "and we're sick of sending them money," kind of thing. And I heard that for years. When we expanded to Colorado, for example, they have been successful there, but there was always that question about the startup, and where's the money coming from, and it's being—and in fact, it used to be when we expanded to a new region, was it going to be Southern California-flavored, or Northern California-flavored? Where did the team come from that—and Colorado was Southern California-flavored. We sent people there from Southern California.

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04-00:07:54 Meeker: Goldstein actually claims that that was the way in expansion should've

happened: that one of the Californias should've adopted one of these regions and kind of "cloned itself," if you will, in order to allow the new expansion—if there was going to be expansion, this is how it should've been done. So the Ohio and Colorado model of, you know, Ohio was Northern California, Colorado was Southern California, or something along those lines.

04-00:08:22 Barnaby: Yeah, it was. Well, I think Irwin Goldstein, I don't know what he was

smoking on that day, but it was more by accident than by design, you know? I think the model was Kaiser Permanente. The talent came out of various regions, and they tried to keep it together so if you took a medical director and a regional manager or a Health Plan manager and promoted them, but team already worked together at some level. It wasn't imposing—as far as I can tell, and I could be wrong—it wasn't imposing the way things were down in Northern or Southern California. It was about, again, the relationships that were established. So If we take somebody from Southern California who is a Heath Plan manager, we ought to take someone from Southern California who is a Medical Group wannabe kind of medical director, because chances are they'll have a commonality and a relationship. And the same with Northern California.

So you weren't mixing so-called personalities. It gets back to the personalities more than the systems. And then eventually, when you take someone that's used to doing it one way, you get a California flavor, a Southern or Northern flavor, because that's the reference point. And so you start to get that. But North Carolina was Southern California; Georgia was Northern California. Because of the teams. I think it's more by accident, and the relationship with the team members, than a systematic approach from Northern and Southern California.

04-00:10:12 Meeker: So it sounds like what Goldstein was suggesting should happen is actually

more or less what happened. And it sounds like Mid-Atlantic or Georgia got started by Northwest.

04-00:10:24 Barnaby: Mid-Atlantic was actually—

04-00:10:27 Meeker: Well, Georgetown, rather.

04-00:10:28 Barnaby: Well, Mid-Atlantic, and then Georgetown then. Yeah, that came out of the

Northwest, because—and who knows? Was it because those people were available? Or what? You know, there are people that will stand here and tell you that yes, Harper Gaston was sent by the Permanente Medical Group to Georgia because they wanted to get rid of him. There'll be as many people that

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tell you that as there will be that they sent him there because they wanted the Northern California flavor. I frankly don't think we are that smart in terms of thinking about expansion that way. We took the best people we could, and we kept them together as a team, and took them there. And over time, they've all developed their own way of doing things anyway, because over time they've transitioned from the Southern California to local people.

04-00:11:32 Meeker: So when you talk about Californians and their lack of interest in what ended

up being a subsidy for the expansion regions, you have to admit they probably had a point, at least to a certain degree. And I'm wondering, you were in North Carolina, then Georgia, then oversaw the regions outside of California. Did you ever warm to that California perspective? Or if not, what sort of justification do you come up for maintaining other regions in spite of the fact many of them needed to be subsidized? Does that make sense?

04-00:12:26 Barnaby: Now, say that to me again.

04-00:12:29 Meeker: So I guess the question is, logically, the Californians might have a point about

not wanting to continually subsidize the non-California regions.

04-00:12:42 Barnaby: Right.

04-00:12:43 Meeker: And you as someone who was in North Carolina, then Georgia, and then as

executive vice president overseeing all of these regions, which included the new expansion regions, I would guess that at some point, you would've either had to come to sympathize with the Californian perspective, or you would have developed a reasoned response to that perspective?

04-00:13:08 Barnaby: Yeah. Well, I understood their dilemma in terms of, you know, "We're getting

nothing out of this, and we're losing money on you guys." On the other hand, my view was we're a program, and quite frankly we're a national program. We need to influence the healthcare nationally. And this is the price of success. As the California region and a successful region, you have an obligation to support the development of this program nationally. And it's your duty. If you really believe in this program, it's your duty. Now, it's not at any cost. You should expect performance. But you also should understand that no one starts a business up without startup costs, and having some period to reach a critical mass and achieve profitability.

So I felt that it was our duty as an organization, if we believed in promoting our program nationally, that those successful regions needed to support those new regions. So that's kind of how I felt about it. And I felt about it that way before I took over the regions that weren't doing so well. I mean, I just thought

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that was your obligation. It's like somebody that comes to this country and sends money home to the parents, you know? It's your price of freedom. And so that was my take on it, now, wrong or right, or whatever. But I just thought it was that obligation.

04-00:15:03 Meeker: What was the benefit of being a national program?

04-00:15:11 Barnaby: Well, two things. Since healthcare is a political issue—a major political

issue—as a national program, we can influence the way care is delivered in this country. We can influence before someone else decides our fate for us. I'd rather be first out of the box and helping create change than following it. And so we can more effectively deal with the federal government—if the federal government sees us as a national program, we can more effectively deal with influencing pricing mechanisms, funding mechanisms, and healthcare. Now, certainly, with all the talk about nationalizing care and healthcare and that, we need to be a player in that, as we were in Medicare years before.

And so the value of being—other than brand recognition—is influence out there. And if you really believe in the Kaiser Permanente healthcare delivery system, why wouldn't you want to take it to the greatest number of people possible, and have them benefit from what we do? If you really believe that the quality of care you get in our program is better than anywhere else, if access is better and more affordable, why wouldn't you want to promote this across the country? At least in markets that will support this kind of delivery system. We're not for every place. You can't go to Fargo, North Dakota and make this work. But you need a critical mass. You need unions. You need young people. And so why not, was my question.

Now, when I transitioned to this executive vice president for regions outside of California, there was a fair amount of resentment because before, these people reported directly to the CEO, and now they're reporting to a middleman, so to speak, and they don't have access to the boss. None of that was really true, but it's the way people respond. On the other hand, I could get an audience for them that they couldn't get themselves, so there were some tradeoffs for them. I could bring attention and a discipline to their program, their region that Dave didn't have time to bring to it—or anyone else, for that matter. And so it started to make sense that—and the regions outside of California, with the exception of a couple of them, all had the same common problems: they weren't financially viable. And we needed to focus in on those common issues, you know? Did we need that position? I don't know. Dave asked me to do it, and I said I would. But it seemed to bring a more cohesive approach to managing our issues at the time. And then, of course, we made other changes at time went on.

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04-00:18:45 Meeker: Well, during this period of time—and it's only a few years—were you

involved in any explorations or decisions to acquire or to move into new areas as well?

04-00:18:58 Barnaby: Yeah. I mentioned Chicago. We looked at Chicago.

04-00:19:07 Meeker: Yeah. I think it was also during this period of time that—August '96, I mean,

was that when the Albany, Vermont thing happened as well?

04-00:19:20 Barnaby: Yeah. Well, that happened, and I was involved in that. We looked at that.

What was it—the Community Health Plan? We looked at that, and we did that. We looked at Chicago. Chicago was really in the '95-96. We looked at the Harvard Community Health Plan.

04-00:19:42 Meeker: Well, why don't we talk about Chicago as an example of one that wasn't

pursued, and then talk about the Albany, Vermont plan as why that one was pursued?

04-00:19:58 Barnaby: Yeah, okay. I mean, they're good examples. The reason why the Albany plan

was pursued was the founder—I'm blanking on his name right now—the founder of that plan approached Dave and asked him if Kaiser was interested in acquiring them. Didn't use the word "acquire." And so it was a friend to a friend. No, no, I can't think of that guy's name. They had the same approach to healthcare as we did. They believed in this not-for-profit, group practice, community rating. And so the basic core principles of our program. And we said yeah. And we didn't do as good a job of due diligence as we should have, but it seemed like a marriage made in heaven, so why let the details get the way of things?

The mistake we made was that we virtually acquired them, but we didn't change anything. You know, we had two sets of books, different system, different computer platforms, nobody talked back and forth, and—. You know, the one lesson I think you learn in acquisitions or mergers is the old goes away, and the new takes over, and that's the way it is. And you don't have two different ways of doing things, and you don't keep the same old culture. You get new management in, you run this, and this is the way you go. And we didn't want to offend them. We should've said to the guy—oh, I can't think of his name now. It'll come to me. We should have said, "Thanks, we'll do this," and "Goodbye." You know? Don't hang around. And we didn't change out the management. We kind of tried to make a broken wheel work. And it could've worked. I mean, we could've done it right. Had we made those changes, I think it would've worked better.

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04-00:22:41 Meeker: Well, what were the reasons for going there?

04-00:22:46 Barnaby: They asked us. They asked us. We were there. We're big brother. They asked

us. It was compatible. It looked like there was a fairly extensive growth market there.

04-00:23:02 Meeker: And the growth market would've been what cities?

04-00:23:06 Barnaby: Well, Albany's a pretty good city. We had Westchester on Long Island,

Vermont. Vermont isn't really that—it's kind of moving back a few paces in history, but in terms of healthcare, a very large welfare population in Vermont, as I recall.

04-00:23:30 Meeker: Medicare population?

04-00:23:33 Barnaby: Yeah. Medicaid. And a lot of old-fashioned ideas, and so—about healthcare.

And so that wasn't great. That kind of came with it. But the New York marketplace—we looked at HIP [Health Insurance Plan of New York], by the way, HIP in New York. During that time, that was a potential acquisition. They came to us. And so when you think of New York, we looked at Rochester. We came close in Rochester. So there was a pattern that Albany, Rochester, New York City.

04-00:24:11 Meeker: So was there a strategic plan to sort of get New York to be another California,

or something like that, or—?

04-00:24:19 Barnaby: You know, we didn't really have a strategic plan around growth. It was, if

someone called us, we'll listen. There wasn't that I recall, and I sat at most of the meetings. The closest we came to really looking at a strategic plan for growth was when we looked at Chicago. And that was, we sat down and talked about specifically Chicago: what the marketplace was; what's there; what could we achieve in growth there; what hospitals could we use, facilities, et cetera? And we did probably as close an analysis of going into that marketplace as we did anywhere else.

04-00:25:08 Meeker: And it came up with no?

04-00:25:10 Barnaby: And we came up with no, not because of the data. We came up with no

because I think everybody was tired of expansion. And we said to ourselves, if I recall right—because Dave asked me. I personally went to Chicago and dealt

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with the folks there. And I think at that point, it wasn’t the data that deterred us from Chicago: it was that everybody was sick about expansion, and the regions weren't doing well, and maybe we just shouldn't bother, and so—. And Chicago in terms of potential market growth, the readiness of the market there to accept our kind of practice, it was there, and the window was relatively narrow to get into that marketplace. So I think we did a good job of due diligence; I just think everybody was fed up with this expansion thing, and we didn't want to deplete our resources anymore. And so timing; maybe "timing" would be a better way of saying it.

04-00:26:33 Meeker: Okay. So it wasn't as if the amount of due diligence done for Chicago said no,

we shouldn't go in there, and then perhaps if that same level of due diligence had been done with Albany, a different decision would have been made?

04-00:26:47 Barnaby: Yeah. Well, I think the indicators said we should go to Chicago. I think the

program was tired of exhausting its resources, the financial drain, and didn't want to take another chance. I think the reason we went to Albany is because we were asked by a friend, a colleague, and it kind of fit our pattern—kind of the superhero, we can do anything. Well, it was just, let's go. Let's do it. And I'm not saying we didn't do any due diligence. I mean, we looked at the books and things, but we made a relatively quick decision to move in there.

And when we made the decision, we didn't do the things that would ensure our success. We didn't change the organization. They had nowhere to go in the long term. That organization was beginning to be squeezed by competition. They needed to be taken up by someone who had the capital resources. They couldn't raise the capital to expand on their own. They weren't big enough. They didn't have enough resources. And so we had what would seem like the resources to help them along. And we didn't do it right, frankly. And so they needed us, or they were going to disappear, and then we didn't do the thing in the way we should've, as far as I'm concerned.

04-00:28:46 Meeker: Could we talk about the McKinsey work?

04-00:28:49 Barnaby: Yeah.

04-00:28:51 Meeker: So this was something that was going on at the time that you were executive

vice president?

04-00:28:57 Barnaby: Yeah. And into my reign as president.

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04-00:29:01 Meeker: And they were traveling around to the various—what were considered—

underperforming regions, from what I understand?

04-00:29:09 Barnaby: Yes.

04-00:29:11 Meeker: I guess, what was your interaction with the consultants? What did they learn

from you? What did you learn from them?

04-00:29:20 Barnaby: Well, I don't think McKinsey learns anything. [laughter] Do you know

McKinsey?

04-00:29:27 Meeker: Other than that they're a high-powered group of well-paid consultants, no.

04-00:29:31 Barnaby: Yeah, yeah. I think that's a very—high-powered, very smart, high-paid

consultants. Very high-end. And to this day, I can remember the meeting when Dave called us all together. We were sitting in a big circle, and introduced to McKinsey. And I kind of resented them a little bit because here again, we were going to the outside to tell us what to do on what we knew to do in the first place, so it added a lot of money. And so my wonderment was, what the hell do we need these people for?

04-00:30:18 Meeker: Did you ever ask Lawrence that question?

04-00:30:23 Barnaby: Oh, yeah. Yeah. But I asked that question before I was really exposed to

McKinsey, and said, "What is it they can do that we can't do for ourselves, and we're going to spend"—and I think Dave was asking for like, $11 million or something. This damn fly's going to bug me, and I don't know where he came from. And I wasn't the only one who had these questions. And so what is it we're going to get for all this money that we don't know now, and why can't we do it ourselves?

And on the other hand, I became a McKinsey convert. Not that they're worth the money, but I began to realize that there are things they can cause you to see that you can't see yourself, and that they did have value, and that they could do things, and helping us do things that we weren't able to do ourselves. All that said, I think we spent a horrendous amount of money utilizing them. We probably over-utilized them, and there was a lot of resentment in the program around McKinsey—which I don't share, by the way.

04-00:31:56 Meeker: You don't share the resentment about McKinsey?

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04-00:31:59 Barnaby: No.

04-00:32:04 Meeker: So not that I'm seeking an apologia for McKinsey, but I'm wondering if you

can offer, from your perspective, what value they provided, and what they offered your organization?

04-00:32:33 Barnaby: Well, what they offered us is an independent process of examining ourselves,

our core values, the way we do things; gave us a view of the outside. You know, Kaiser Permanente always looks inward. Seldom do we think there's another world out there that we deal in. We inward process. And they gave us an opportunity to kind of take ourselves outside of Kaiser Permanente and look at the outside world, see how the outside world might look at us, and the things that we do. I think a lot of what they did was challenge our core values, our model, our delivery system. The partnership: can it really work long term, and can it withstand all the pressures? And does it have value?

And so they caused us to begin to look at ourselves through someone else's glasses, so to speak—a pretty expensive way. And then they supported us in the non-for-profit/profit decision. They were really advising Dave. McKinsey became his kind of external advisor, and then worked with the rest of us as we began to try to change our organization, maybe make us leaner, meaner, and able to compete and respond quicker. They questioned things that we did for years, and made us think about why we did things that way, and is there another way to do things? So they did bring value, at a high cost. But they brought to the table things that we wouldn't do ourselves: that we don't want to open door number three because we're afraid of what's behind it, so we won't open door number three. It's as simple as that.

04-00:35:00 Meeker: Well, what were some of these "doors" that they opened for you? And I mean,

I guess it sounds like you said that they asked you to reexamine this long-term, fifty-year partnership—or I guess at that point, it was about forty years. Surely they must have also, at the same time, provided alternative scenarios about, if this model for some reason should be examined, they might have provided alternative scenarios for ways to move ahead on a different or modified, or something like that, model. Does that make sense?

04-00:35:43 Barnaby: Yeah. Yeah, it does. They did give us alternatives, but they usually initially

would cause us to examine the model itself without thinking there's another way of doing it. "Assessing" it might be a better word. Does it work? Is it producing a result you're trying to achieve? Can it work in the long term?

For example, one of the issues was the partnership. And under the current medical services agreement, will you be able to compete effectively in the

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marketplace? Should the medical group have more independence from the health plan hospitals? Should there be other mechanisms of incentive? Should they own property, facilities? Should you sell them part of the business? Should we become a distributed health plan? Sell them the health plan, and we'll become the quality measurement organization, independent assessment of quality? All those kind of things were brought to the forefront, of how do you want to do business? Can you successfully survive with a marriage of two organizations that one is politically driven, and you as a partner have no input into the leadership of that organization, and no stake in it? Should we each own part of each other, however you would do that? Should there be some other incentive or co-ownership that incents the physicians to behave in a certain way? A lot of it, frankly, was around physician behavior, and will the physicians be able to rise to the challenge in the marketplace, and provide the level of care, the quality of care as measured externally, and still meet your financial obligations? So those were the kind of things, among others, that they would bring up.

Now, as I said, Dave was using them as his personal consultant. They'd also come to the regions and talk about performance. I can remember conversations about utilization, and talking—and stuff—you know, we already knew some of this, but it was a reinforcement. Consulting, in a lot of ways, is reinforcement of what you already know. It's being told to you by someone who doesn't have a stake in the business, and so maybe there's credibility, but we weren't learning things we didn't know, frankly. So for the regions outside of California, they were coming and challenging our rate structures, and are we positioning ourselves in the marketplace? Are we going to be able to compete effectively in Georgia at these rate structures, or do we need to change our benefit structures and modify our rates? Kind of things. And they were doing a lot of independent analysis around those kinds of things while they were working with Dave to assess personnel—who's on the team, who's not on the team—what changes ought to be made. They were doing stuff like that with Dave.

04-00:39:32 Meeker: So I guess what you're saying is that they worked in a couple capacities. One

was as a mirror to the organization overall, commenting on large issues such as the forty-year partnership. And then they were also kind of working as a personal advisor to Lawrence about things like personnel and so forth. Is that what you're saying?

04-00:40:00 Barnaby: Yeah. And they worked with me in some of the same capacity.

04-00:40:11 Meeker: As a personal advisor?

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04-00:40:13 Barnaby: Yeah, and in terms of some things that had to change out in the—now, I'm

talking about when I was the president of the organization, and all the regions reported to me.

04-00:40:24 Meeker: So this is 1997—?

04-00:40:26 Barnaby: Yeah, right in that: '97-98.

04-00:40:29 Meeker: When the division structure was created, and so forth?

04-00:40:31 Barnaby: Right. And actually, as a result of a lot of conversations not only with

McKinsey, but with Dave, I made changes in California.

04-00:40:46 Meeker: For instance?

04-00:40:46 Barnaby: In leadership. I removed the two regional managers from California. Paid

dearly for that, but I did it.

04-00:40:57 Meeker: Why do you say you "paid dearly for it?"

04-00:41:01 Barnaby: Oh, you know, when you make changes in Kaiser Permanente—let me try to

use an example. I removed the regional manager in the Mid-Atlantic states region one time, because I was convinced he wasn't the right person to do the job. And I had spent the prior six months before doing that doing my homework, and talking to a lot of people, and determining if their input was correct or not. And I was hounded by the medical director, who could not get along with this guy at all. And part of the reason we needed to remove him was because they had no relationship. And so I came to my own independent decision that I needed to remove this person, and did, only to have the medical director say to me, "How could you possibly do that to that man?" You know, the same guy that for six months had bitched about this guy being incompetent and not doing his job, et cetera. So again, it's the personal and professional mixture, the blending.

And so in California, when I removed Dave Pockell and Hugh Jones, first of all, they were both twenty-year employees, so they were not newcomers to the program. They had been around. And I was changing {a cause?} to the mix. It wasn't that the medical directors were fond of them professionally. They were fond of them personally. So how could I possibly do something so bad?

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And that's kind of the way Kaiser's operated. We kept people on board for years because we liked them, not because they were doing their job. And you know, it's a good thing and a bad thing. I mean, we don't wholesale slaughter people out there, but on the other hand, when you're trying to make changes and people resist it, you've got to do things that are unpleasant to make that next leap in where you want to be professionally. And so you pay dearly from it, because what it is is you get a lot of "Well, if he did this to these guys, am I next?" So you get a lot of retrenching, and like I say, there probably isn't too many human beings that would say they had to go. They shouldn't have been let go. Most people would say that needed to happen, but they didn't want it to happen to them.

04-00:44:03. Meeker: Well, in this case, what was to be gained by removing these two regional

managers?

04-00:44:09 Barnaby: What was to be gained by removing them was that we were trying to move the

organization along in different direction. We wanted to remove some of the autonomy of Northern and Southern California sitting on their perches, looking down at the rest of the organization. We wanted to change the ability for the organization to make decisions and move forward quickly, and basically they were resisting almost all the changes. Actually, they were undermining most of the changes that Dave and I wanted to put in. And so we analyzed the situation; McKinsey helped us do some of that. And the answer came up: if you're going to continue to change this organization, you've got to remove the obstacles to change. And so we asked them to leave.

04-00:45:15 Meeker: This dynamic is one that has come up before, but I've never, I guess, really

heard it placed in such stark terms, which is instead of the Health Plan versus Medical Group and so forth, more California versus the rest of the program. Did you and Lawrence, and I suppose McKinsey, see that as the main sticking point in this period of time, of sort of the California regions—especially with this notion of them subsidizing other regions—being the obstacle to change?

04-00:46:04 Barnaby: That was part of it. But it's more far-reaching than that. The California regions

were almost opposed to any change, and especially if Dave Lawrence wanted to make the change. You've got to remember, again, the dynamics of personalities. Dave Lawrence was regional manager of Northern California; Harry Caulfield was medical director of Northern California. They didn't get along. So now Dave is sitting over in the corporate offices; Harry is independent. He is his own guy—he doesn't have to go along with anything that he doesn't want to go along with. And California, after all, wields the ten-pound hammer: the source of capital; the source of most of the resources of the resources in the program, between North and South. So again, it becomes—you know, nobody will talk about it much, but it becomes a

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personal thing. "And if Dave wants to do it, I'm not going to do it." And that carries over throughout the whole organization. And it was basically the way that Dave Pockell and Hugh Jones became. They said, "I work in California, Dave, and I'm not going to do what you ask us to do. I have a boss; a medical director," and so on. And so they were just basically resisting almost everything Dave wanted to do.

04-00:47:46 Meeker: Do you know an example of any key things that were being resisted?

04-00:47:54 Barnaby: Well, yeah. Let me think. Dave wanted to make some changes in the duties of

the team. We used to meet every Monday morning over at the Claremont—you know, the infamous Claremont Hotel over there—and have our management meetings. And basically, Dave wanted to change the duties of both Pockell and Hugh Jones to take more of a program-wide perspective. And they said no, they weren't going to do that, and they couldn't make them do it. I mean literally, words to that effect. And so the meeting would come to an end, and we'd leave, and then Dave would fuss and moan about what do we do next? And then we'd get the next flavor of the week, and then they'd say, "Nope, this is not in our best interest."

And Dave was not the kind of guy that wanted to take that on. He'd fuss and fume about it, but he would not stand up and say, "You know, last I looked, I'm the boss, and at the end of the day you've got a choice: you either do what we're going to do, or find yourself another place to work." He wouldn't do that. That was my job, by the way.

04-00:49:20 Meeker: It was your job to let these two individuals go?

04-00:49:26 Barnaby: Yeah.

04-00:49:27 Meeker: What would it have meant for them to take a more program-wide perspective?

04-00:49:33 Barnaby: First of all, it would've helped the program overall, because these were

veterans who—you know, Hugh Jones came out of Ohio, and Dave Pockell was a hospital administrator in Southern California, and kicked around for a number of years. So it would've given more perspective to the program in general if they took more of a program-wide role.

04-00:50:02 Meeker: Was it a perspectival thing that was being asked of them—to simply think

differently? Or were there like, programmatic changes or operational work that they were supposed to do differently?

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04-00:50:15 Barnaby: Yeah, there were both. There were both of those. There were some operational

things that they would've been asked to do. For example, Hugh Jones was probably going to be asked to step down from his regional manager position, and take on more of a sourcing role for the program. And he didn't want to do that. He was entrenched. So there were some role changes; there was also some perspective changes in the program that would have helped, I think, some of the fledgling regions feel that they were part of something that they might not have felt part of at the time. You know, California could be very generous, or they could just withhold. One time, they were your best friend, and the next time, they're not going to do anything for you. You know: sink or swim kind of thing. And so I think if you say you have some expanded responsibilities, you're more liable to help them swim than you are to let them sink.

You know, when you boil it down in the end, it was more a personality thing than it was anything else. It wasn't that "this is a wrong way to go, and I can't be part of it." It was "if Dave's going to say, 'Do it,' I'm not going to do it." I heard, more than one occasion, one of those two guys say, "You know, if you don't like my answers, then I'm going to leave the meeting." Well, at least the way I was brought up, that's not what you say to the boss in an open session.

04-00:51:53 Meeker: It's interesting when I hear about this resistance that Lawrence met by his

subordinates, and also the resistance from the Medical Groups. Although I understand there was a history between Lawrence and Caulfield, I've also been told by many people—

04-00:52:18 Barnaby: And Sams, I guess. Sams was part of this, too.

04-00:52:20 Meeker: And Sams. But he was out of the equation in the early nineties, I guess.

04-00:52:23 Barnaby: Isn't it funny? They still kick around, these guys. He was out, but he was still

kicking around. Harry used to talk to Bruce all the time, you know what I mean? So yes, they were gone, but the memory lingers.

04-00:52:39 Meeker: But what I was trying to say is that from what I understand, Lawrence was

actually the preferred candidate amongst the Medical Groups. And I guess I'm wondering, from your perspective, at what point did that relationship sour? Or are you talking more about the sort of long term—?

04-00:53:05 Barnaby: Well, Dave might have been the candidate among the medical directors

because he was a physician, for one thing, and physicians are physicians. The other thing you've got to remember is Wayne Moon was the medical director

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of Northern California—not well-loved by the Medical Groups, either. And so again, we go from the professional to the personal side of things. Wayne, he was the regional manager of Northern California; I don't think Bruce Sams liked him, for example. He was over there during Bruce's reign. Ask yourself the question: was it Dave because he was the lesser of the two evils, or was it because he was a physician, or what? I mean, I don't know that we'll ever know the answer to that, but somewhere in there is the reason that it went from—. And you know, the medical directors didn't like Jim Vohs. There was some tough feelings there. So were they voting against Jim Vohs when they selected Dave Lawrence, or were they voting for Dave Lawrence? It's a mystery.

04-00:54:24 Meeker: Can we talk about the '97-98 financial difficulties? The two years that there

was a loss?

04-00:54:35 Barnaby: Yeah.

04-00:54:35 Meeker: And I bring that up because—

04-00:54:37 Barnaby: I try not to remember that. [laughter]

04-00:54:41 Meeker: Yeah. [laughter] Or actually, I need to change the tape again, so we'll

probably just maybe spend another half-hour or so? Does that sound all right to you?

04-00:54:47 Barnaby: Whatever you want to do.

[End Audio File 4]

[Begin Audio File 5 barnaby_richard5_05-07-08.mp3]

05-00:00:05 Meeker: So I was going to ask about the '97 and '98 economic crisis faced by the

organization. And various individuals I've spoken with have provided a variety of perspectives on why this happened, but I think almost without exception the reasons that have been offered have been sort of internal failings or challenges. There is very little recognition of things that are happening beyond, you know, the Ordway Building, for instance. Or beyond the Kaiser Permanente organization. So there's very little memory of the managed care crisis, very little memory of the economic recession that we were coming out of, I guess, at that point. I guess we had probably come out of it by that point. But also the emergence of a lot of for-profit competitors and so forth. People attribute the economic decline to the creation of the divisions, although the

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economic decline actually preceded the divisions. I guess I'm kind of wondering from your perspective where you were sitting as president—I mean, obviously, this must have been a very difficult time, and stressful. But what was your analysis of why that happened when it did?

05-00:01:44 Barnaby: Bad timing. I mean, every business goes through cycles, and we happened to

hit one now. Some things we did to cause it or contribute to it, and other things, it was just the marketplace and the number of things you said: more competition. And I'll say this to anyone: anyone that says the division concept created it is an idiot. They don't understand it. Because if you analyze the divisions, what did the divisions do? We went from regions to divisions, because we were trying to avail ourselves of economies of scale. We put one person in charge of two geographic areas. We didn't change the Medical Groups; we didn't ask them to do anything different. We didn't change the medical service agreements. We simply said we want to bring the resources of two closely-related geographic areas together to take advantage of scale. And so if anything, it should've helped us meet some of our financial objectives. What it did, unfortunately for our program—again, who looks inward: it was disruptive. And maybe it did cause some folks to take their eye off the ball. But the whole concept of going to divisions was to get away from the regional autonomy that this program is infamous for; that we do it here this way, and we don't do it anywhere else that way, and we never will. And so the division thing was more—there were two reasons: to eliminate some of the regional autonomy that had grown almost—and we had begun to choke on here, and to take a benefit of economies of scale. Nothing more than that. And it was a recognition, too, that as a national program, we needed to present a different front.

So we made a change to the Southeast division—you know, North Carolina and Georgia. Each had their own medical director, and each had a resident leader with one division president. I also at the time changed the titles from "regional managers" to "regional presidents" right before that, because for one reason, to the world outside of Kaiser, "regional manager" means nothing. Usually it's used in a sales organization. And so when, for example, in Atlanta, when our regional manager wanted to join the Young Presidents Organization, they wouldn't let him in because he was a "regional manager." He wasn't a "president." So I said, "Fine—we'll make you a president, and that'll get you in, right?" And he needed to connect with those community groups. And so first I changed them to "presidents," and then I put in a division structure.

But again, it was change, and Kaiser resists change. And I'll never forget the day that I went to Oliver Goldsmith and Harry Caulfield, and I had spent months working on this—I had it all in a very nice marketing package—of converting California, Health Plan and hospitals only; I didn't tamper with any of the Medical Groups. I met them at the L.A. [Los Angeles] Airport, and I

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presented the move from region to division. And they both got up and walked out of the room. Well, Harry didn't. Oliver left, and Harry stayed.

And think about California. We operate in the state of California. We have common groups throughout the state of California. In Northern California, we had one method of computing rates; in Southern California, we had another method of computing rates. In Northern California, we had one method of billing; in Southern California, we had another method of billing. We had research departments in both areas. We have incredible duplication, with minimal skill levels in some areas. The whole idea was to consolidate and bring to the marketplace that you can deal with one California, General Motors. Before when General Motors called, and said, "Well, you have to call Southern California, because they do their rates this way." Or you have to call Northern. So the idea was to present a common front and a statewide ability for our clients—for CalPERS [California Public Employees' Retirement System], for General Motors, for all of our groups—to deal with one California, one marketing, one membership service. And it kind of made sense to me that we're moving out of the forties and into the sixties.

Well, it just wouldn't go. And they've changed everything back. And fine. I don't have any resentment from that standpoint, because I did what I thought needed to be done to grow the organization, and it didn't work.

05-00:07:35 Meeker: Have any of the proposed efficiencies, such as a similar billing approach or

way of calculating fees, for instance?

05-00:07:47 Barnaby: Yeah. And some of that has stayed.

05-00:07:48 Meeker: Has stayed?

05-00:07:49 Barnaby: Yes. And think about pharmacies across the nation that do the same thing. We

had Northern and Southern California directors, and then we have directors in each outlet doing the same thing. Northern California buys; Southern California buys; the rest of the country buys. That should be a national organization. It should be "Kaiser Permanente Pharmacy Organization," housed here, and buying for the whole program, where legal. There's some issues in the pharmacy business about that. Taking advantage of scale, and warehousing, and distribution, et cetera. Why does everybody need their own to be successful? Well, the answer really is you don't. But then you're losing. You're losing that ten-pound whale hanging on your back, so you don't like it.

Yes, we're marketing; our rate calculations are being done statewide. Our response to the employers, I believe—last—now, I don't stay in done with every change, but are done so that when we respond to a group in California,

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we can respond as a California—call it whatever you want: region, division, organization. But it's not "oh no, we do it this way, and they do it that way." That was the whole reason for going to these divisions, especially in California. Medical Groups didn't like it. Their first answer was, "Where's my regional manager when I need him?" And I said, "Well, we'll have a regional manager there. Don't worry. If you have problems—." And I used to say, "You don't like the regional managers anyway, for Christ's sake! What do you care whether he's there or not?" "Well, that's different! I need my regional manager!" And I thought, "You know, you're not joined at the hip." Because the Medical Groups do what they want to do, and then they ask permission or forgiveness depending on what it is.

So it was a psychological thing, and as I said, I was the instigator of that, and I take full credit and full blame. It was done for the right reasons—it just never got accepted. And I think it's the historical tug of the organization to pull back, pull back, pull back. It's the way we've always done it. It's just like the Jim Vohs example I gave: we always did it this way, and building a building in thirty-six months, and now why do you want to change that? You know?

05-00:10:27 Meeker: Well, it's been ten years since then, and the organization still exists. And I

don't know exactly the financial shape that it currently is in, or what challenges it faces.

05-00:10:41 Barnaby: But Martin, let me say, though, this wasn't the first time we had financial

crisis in our program and these are things that go in cycles. And so if you go back over sixty years, you can see the cycles. And nobody liked them, but it happened before. And so part of it is, the world around us was changing faster than we were changing ourselves, and you're bound to get caught up in some of this stuff.

05-00:11:22 Meeker: So I know that you were only there until the end of '99, so there's obviously a

lot of time that's passed since then that you probably can't speak about from direct experience. I'm wondering about the value of—or the perceived value of—not changing, or being somewhat resistant to it. Like maybe that is an attribute or something. But then also, I guess the second kind of appendix to that question is this pattern that I think I've seen in the organization: that a radical new idea will come along, and because it's a radical new idea, it will be rejected out of hand. But then within a few years, you will see that that radical new idea has been absorbed within the organization. The first time I noticed this was actually around Sidney Garfield's plan for redesigning primary care delivery, and then it came up again in the 1990s with the Adult Primary Care Initiative. And that was rejected, but then subsequently a lot of the ideas from that had been absorbed into the way in which primary care was conducted within the organization. And it sounds sort of like some of what

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you had hoped to accomplish with divisions has been absorbed into the organization.

So I'm asking you to comment on this. One, is there a value to not changing? And then two, is the sort of value of not changing something which is merely a value, and impossible to enact in real life?

05-00:13:38 Barnaby: Well, it is a complicated question, because I think the answer lies in yes and

no. There are core values of an organization that should never change. It is what made you who you are, and those things will hold you in good stead hopefully across your business life. There are business processes that need to change, because the market dictates change. And I think you have to separate and identify those things that are core values that got you where you are today versus business processes. Consolidation, which basically the division concept was consolidation, taking advantage of scale.

And yeah, I think you have to be patient in Kaiser Permanente. It's a program that tests one's patience, because a lot of good ideas get squashed, only to resurrect themselves down the road as the market begins to dictate changes in the organization. So kind of the internal forces beginning to change the internal process; sometimes, internal forces will do that. But mostly, the marketplace will decide that. And so is it a good or bad? I don't look at things as a good or bad idea. It's probably, is it the right time to have something like that take place?

I think by nature, Kaiser Permanente is resistant to change. It doesn't take change easily—any kind of change! Internal or external. We fight the system externally equally as well as we fight it inside, rather than swallow our pride and say, "Okay, we'll make do." So I don't look as a bad or a good thing. It may be a value of our organization to have patience, and not accept everything that's the latest fad and trend, and come along and jump on that bandwagon. On the other hand, I think we're missing opportunities by somewhat resisting change. So knowing when and when not I think is the trick in this.

But I don't look at it as failure at all. I look at it as it was an idea that its time wasn't right. And yet some value has come out of this thing. I know the pharmacies are operating differently than they were under the—you know, they don't call it "division" anymore, but we consolidated a lot of those functions. We consolidated a lot of the billing and rating systems. Some of the financial planning things have changed. We brought groups together that never worked together before. It was a good thing. And yet, the identity of losing the region, the standalone "I'm my own thing," it was overwhelming resistance to that. If I would've made divisions and called them "regions," [laughter] it would've worked. That didn't make sense to me.

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And so I think it is complicated, and I think it's a good question. Whatever works works for you, but you can't lose sight of the outside marketplace and the forces that it'll place on your business. And I used to say to people, we have a notion in Kaiser Permanente that we can never go out of business. And I used to just refer people to the laundry list of business obituaries that I kept track of, of companies who others said they could never go out of business, who may not have gone out, but aren't the same force in the marketplace. So there's nothing sacred about what we do. We could be gone tomorrow. A change in regulations, government guidelines, competition could all put us on the wrong track. So you have to keep the business viable.

05-00:18:26 Meeker: I don't know if there's a quick answer to this or not, but how did the creation

of the Permanente Federation impact your work as the president of the Health Plan?

05-00:18:44 Barnaby: Well, not really at all, but if you think about it, the Medical Groups resisted

the creation of divisions, which is a consolidation. What is a federation? In a sense, it's a consolidation. It's bringing together an oversight process of all the regions, saying that we're going to provide things to you that you shouldn't be doing yourself. I mean, it's almost like it's contradictory, in that they didn't like it, but they went ahead and did it themselves. Which is kind of the history of the Medical Group.

My view on the Federation was if they can help bring a new, improved Kaiser Permanente to the marketplace, then it's a good thing. If they're creating more bureaucracy, if they're creating more handicaps to us being nimble on our feet to respond to marketplace changes, then it's a bad thing. And I think some of the stuff they've done is good, and some other things I think they probably have created some barriers to things.

05-00:20:09 Meeker: Do you have any examples?

05-00:20:11 Barnaby: Yeah. I think the stuff they did on quality is done very well, and has brought a

lot of benefit, and opened up the doors to look at these issues across the program. I do think they brought a layer of cost to the program that kind of feathers their own cap in a way. That's unnecessary. I think they could have achieved some of what they were trying to do—. And they've had some dry runs at things that failed, and gone back, and—now, I'm a few years dated on this because I haven't kept up too much with them, except I go on the website once in a while and look. But my view was, if this makes a better Medical Group, then do it, and we'll to figure out a way to make it work. When I presented kind of the same thing in divisions, they said, "No. Under no circumstances do we want to change." So I think it's leadership perspective on how you see the world on which given day, and I don't have a problem with

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what they did. I think there's some duplication. And on the other hand, one of the things that was important was that they're beginning—at the time—to see themselves as a business, and they need to run themselves as a business and be accountable. And that's an important change for the Medical Groups. And so that, I applauded them for.

Now, we created this Partnership Group, and meeting, and that was another way of protecting Dave a little bit, you know?

05-00:22:04 Meeker: What do you mean by that?

05-00:22:05 Barnaby: Well, we used to have a group called the Kaiser Permanente Committee.

05-00:22:12 Meeker: The KaiPerm Committee?

05-00:22:13 Barnaby: Yeah. Which I was a member of at one point in time. And it basically got to

be the big regions and the small regions, and the big regions would sit in the circle, and the small regions would sit outside the circle. And it was Jim Vohs running the thing. And it, kind of like anything, runs its course, and it wasn't being productive.

And so along comes Dave, and then we start to think about do we really need the KaiPerm Committee, or what do we need? And we started talking at the same time about the national partnership with labor. And so we created this National Partnership Medical Group Health Plan, and it was—when I say it was to "protect Dave," it was to take some of the pressure off Dave, because Dave was starting to get a lot of shots taken at him by the Medical Group for doing things without consulting with the Medical Group. So this gave us a management process [coughs] replacing Kaiperm that you still had the major players, that the California regions had their number one seat at the table, had some other places around there, and gave a chance for—when I say "protect Dave," not everybody taking shots at Dave. So it gave us another layer of process to go through through the important decision making of the business of Kaiser Permanente.

And I don't know how it's doing today. I guess it's still around. I don't know. The players have changed, I guess, as medical directors come in and out of office. But through this whole process, Dave was always a target, I guess. And not just Dave, but if Wayne Moon would've been there, he would've been a target, and Jim Vohs was a target when he was—. And so this gave us a different process to discuss important, sensitive issues in the program, both sides of the program, without Dave being always the one saying, "We've got to do this; we've got to do that." It gave more ownership to the partners. I don't know. I guess it's still working.

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05-00:25:03 Meeker: It's called something slightly different. I think they can't say "partnership" for

some legal reason, but—

05-00:25:07 Barnaby: [laughter] Is that right?

05-00:25:08 Meeker: Yeah. I don't know if it's—.

05-00:25:11 Barnaby: No, let the lawyers in it now. They'll change it for you.

Well, I mean, if you look at—and you have—if you look at the history of Kaiser Permanente, it's been a challenge. It's a very unique organization. There's a set of business principles that supports the organization, but it runs on personalities and relationships, and you get more done or less done, frankly, if people like you than if they don't like you. It doesn't have to do with how smart you are. And it could almost be described as an Achilles' heel of our organization, but it's also a strength if managed right.

So it's a very unique—and if you talk to the old timers of Kaiser Permanente, they talk about Kaiser Permanente as they would their mother. I mean, it's a very personal thing, and it's more than a company. We call it "the program." And so it grows on you. It's something that's in your blood. And I sensed the loss when I left. I didn't lose from the stress of managing the business. It was the people, the interaction and the people, and things you do to make—and the good feeling you get when you know somewhere out there, somebody's life is better because we've delivered what we stand for. And that's what I think keeps most people coming back every day. Because certainly, it isn't the pay. I mean, not-for-profit doesn't pay as much as you could make in the for-profit world; education doesn't pay as much as you could make in the business world, et cetera. But it's something about what we do that keeps people coming back. And thank goodness for that, you know? There's a few million people that benefit from it.

05-00:27:35 Meeker: We should probably wrap things up. Do you have any final thoughts? Or did

you just offer your final thoughts?

05-00:27:42 Barnaby: Well, I hope I didn't offend anybody, and I try to tell it like it is. And we have

a wonderful program. And quite frankly, I left with a good feeling when I left. And some things worked, some things didn't, but if you feel good about what you've done, that's all that counts. And this program will be here long after all of us are gone, I believe. It may look different, may smell different, may taste different. And we have been fortunate to have unique almost characters, ranging from Sid Garfield to Ray Kay, Fred Scharles in the old days, and the characters to come, that have devoted their lives to this program.

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So for me, it was a good thing, and it's a good thing, capturing the history of where we've been. And like a marriage, the good times and the rough times all add up, and hopefully you have more good than bad. But it's a great organization.

[tape stopped, restarted] 05-00:29:01 Meeker: We'll just move this around, and put the final statement at the end. So tell me

a little bit about the Labor Management Partnership, the origin of it, and what it sought to accomplish.

05-00:29:20 Barnaby: Well, basically, the Labor Management Partnership was an idea that came out

of a meeting with the AFL-CIO leadership in Washington, DC, because Kaiser was approaching a period of negotiations where we were probably going to take several strikes. And like in any industry, work stoppages are not a good thing for certainly the health of our members and our employees, et cetera.

05-00:29:55 Meeker: Where were you in the office at this point? Do you recall?

05-00:29:59 Barnaby: Yeah. I think at this point, I was the executive vice president.

And so we traveled to Washington, and it was the two regional managers from California, myself, Dave Lawrence. I believe we had a couple of medical directors there—I don't remember which ones. And we talked about there might be a better way to do things with the unions, and yes, we were interested in exploring the possibility. So out of that, I got assigned to kind of lead up the effort. We had a counterpart out of the AFL-CIO office by the name of Peter DiCicco, who is a long-time union official.

And so we started meeting. We started talking about what kind of changes would need to take place. We talked about long-term union contracts, no strike provisions, et cetera, et cetera, et cetera. And it was a typical negotiations process. I had people from HR involved in this. We appointed one of the regional managers that was in our—oh, where was Gary from? Oh, Connecticut. When we closed all that down, we moved him to a role of being the day-to-day manager of the Labor Management Partnership.

And so it took probably over the course of two, two and a half years to finally agree and get everybody on board that we wanted to take an approach with labor as a partner, and invite them in, so to speak, on major decision-making processes where they could have a say and rally their rank and file around the support of Kaiser Permanente. And we'd give up some things for that, and we'd get some things for that.

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05-00:32:30 Meeker: What was the program going to give up?

05-00:32:32 Barnaby: Well, our autonomy, for one thing. We were going to essentially invite them

into the boardroom. We were going to expose our dirty laundry, our way of thinking, our way of doing things. And we were going to ask them—I'll use this word: we were going to start asking for permission to do things, as a partner. And for that, we would get long-term contracts; we would get concessions in certain areas as we were trying to right ourselves in the marketplace on benefits, et cetera. And we'd get long-term contracts out of them, no strike provisions, et cetera

And so both sides traded off, but what it changed was the traditional contentiousness of labor and management having to—you know, if you say yes, they say no, kind of thing. We still went through negotiations on contracts. We still had to do that. But there was much more willingness to see our points of view in the marketplace. For example, the labor unions wanted to become part of our marketing arm. They wanted to recruit members into Kaiser Permanente. They wanted to be more active in selling our program to their rank and file. But for that, we had to be more open to organizing employees, and allowing the unions to come into our own ranks.

So quite a different approach to the traditional approach to dealing with labor unions. A lot of suspicion around motives of what's management really trying to do here, "Are you lying to us when you're telling us you're not cutting out jobs?" and so on, all the things that go behind a union's position—and management's position on employee relations issues. So it changed the whole dynamic of that. Now again, I've kind of moved away from it. Last contact I had was about two years ago. But I'm told it's still working, and it's created a different way of thinking among managers.

05-00:35:09 Meeker: I mean, that's the unique thing about this, and I think it's a little hard to sort of

pin down, because it seems to me—I mean, I've read through the original documents and the original agreements, and I think the 1999 revision, or 2001, or something like that, and it seems to be more about agreeing upon a way of thinking, as opposed to agreeing to any specific—or many specific—programmatic or operational changes, settings, et cetera.

05-00:35:48 Barnaby: Yeah. I think you're probably right. Under the old system: "You're the bad

guy/I'm the good guy" kind of thing, or vice-versa. And this is opening the door to ways of thinking. Don't think for a minute, though, that there hasn't been a lot of resistance. There were a lot of old-line managers that were used to simply telling the unions no. Arbitration, opening up arbitration issues, arbitration on union issues, employee issues, took sometimes years. And we

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started talking about we would resolve arbitration issues in no more than six months. So a different way of thinking about the process.

And there's risk, because you expose yourself to—you have to share data. I used to sit down, at the end of my career, and I reviewed our financial statements with the union. We never did that before! We wouldn't even give them a copy! They'd get them, somehow—you know, an employee would get a copy and send it to them. We'd go over, and we'd meet in Las Vegas—they love to meet in Las Vegas, because it's a union town. We'd have monthly meetings in Las Vegas, and we'd sit and—it was a very big group; it was probably thirty people around the table—and I'd have our chief financial officer explain the whole financial statements, opening Pandora's box to the world. That was a change in the way we conducted our business.

05-00:37:19 Meeker: Maybe a skeptical union member might say, "This is all done basically for KP

to get what it wants out of the unions."

05-00:37:35 Barnaby: As many managers as we had that were the old guard, that wanted the

traditional union relationship, we had rank and file members that liked the old ways, too. They liked to be able to go up to the guy, the boss, and say, "You can't make me do this! It's not in the union contract!" Et cetera. And sure, we had disbelievers on both sides of the equation. And that's why it was difficult to get everybody's buy-in. But the leaders of the unions had wisdom enough to see that there was a better way to do things in our relationship, and that we are linked together, we are married, and we had better learn how to do this, because their livelihood and our livelihood depends on it.

And so absolutely, there were always people that wanted to go back, and liked the way it was, liked to be able to tell their union steward to tell the manager, "You can't make me do it, and it's not in the contract, and here's the language." So basically, we turned the whole thing upside-down.

05-00:38:42 Meeker: Does that happen less often now, do you know? That seems to happen less

often, or that's not part of the new way of thinking?

05-00:38:50 Barnaby: Yeah. It happens less often. There's still issues. It's not perfect. But we haven't

had a major strike in our program. I think you'll find that the major unions like the Service Employees workers here—

05-00:39:09 Meeker: SEIU [Service Employees International Union]?

05-00:39:10 Barnaby: —SEIU, they have fewer issues, and are sitting around talking about more

important things than they used to talk about. But there's still stuff that doesn't

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work quite right. It's not perfect, and never will be. But the mere fact they're sitting at a table talking about things that they refused to talk about things before and compromising on things is progress. And so it's an evolving relationship, and one that I think in the long term will make us more competitive. Because we're not going to get rid of our unions, they're not going to go away, and they're our employees and we have to treat them right. And so I think in the long term, it gives us a competitive advantage over organizations that have the traditional labor management relationship. So we'll see. I mean, the history books will tell us if we're right or not, I think. So—.

05-00:40:22 Meeker: Is there anything within the partnership that you could identify as the key

element, the kernel, what has to be there? What everything else springs from?

05-00:40:41 Barnaby: Well, what has to be there in the partnership is a continuing willingness to

evolve the process. No one's ever going to get everything they want, but the fact that you're willing to continue to sit at the table and work on the issues that will make Kaiser Permanente more successful will in turn make the union more successful. Without employees or union members, the union can't exist, and without employees, Kaiser Permanente isn't going to exist. So staying at the table and working through the issues. And it's the same thing—you can look at the partnership in the Medical Group and Health Plan as the same thing. It's basically like a union relationship. The longer we stay at the table and talk about the issues, the better chance we have to be successful. When we pack our bags and walk away from the process, we're going to fail.

So it's no different with the Medical Group or the labor unions and the Health Plan. The longer we're able to sit at the table and face our issues and our differences, the more successful we'll be in the long run. We'll get through them. And I think that's proven. I mean, when you think about how far we've come and the cast of characters that got us here, it wasn't without issues and problems.

05-00:42:17 Meeker: When I go forward and conduct interviews in the future, what sort of

questions would you ask other folks about the Labor Management Partnership in order to gain more insight into where it came from and how the agreement was arrived at?

05-00:42:36 Barnaby: Well, I would ask them about what they think the origins are, because some

people will think this was forced on them; it was something that was decreed, and that's it. And also, I would try to get a sense of what benefits people have begun to see from the process of creating this Labor Management Partnership, and is there in fact continuing value in evolving this partnership? Or, on the other side, what are the things that you see that you feel you've lost, if anything, in this process? Have you lost control? Have you lost value as a

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leader in the program from sharing this information? I'd ask them also is there a long-term value in continuing this? Or at some point, should we go back to the old way of doing things? What are their thoughts on that? I don't know who you're going to be talking to in the future.

05-00:44:01 Meeker: Well, it's possible we'll be looking at labor issues more in depth in maybe year

four or five. So that's why I asked those questions.

05-00:44:11 Barnaby: The other thing I would ask is how do we institutionalize this process so that it

becomes a way of Kaiser Permanente life, rather than the basic premise under it started: "We will have a labor management partnership—now let's go find a way to make it work." At some point, our leaders ought to turn to each other when they're talking about something important in the program and say, "Well, how would this affect our partners?" We have Health Plan, Hospital, Medical Group, and now we have Labor. So I like to think about it as we added another entity to the equation, and we can no longer sit there at the table and decide things without asking, "How will this affect our partner?" I don't think a lot of people see it that way. I think they look at it as an administrative process to help our labor negotiations. You'll always have to have labor negotiations. You are going to have to sit down and hammer out a contract. What you don't have to do is have this willingness to hurt the organization if you don't get what you want. It's a matter of compromise and meeting in the middle.

So I happen to believe it's going to be one of the more important things we've done in the last ten years—not the only one, but one of them. And I look at Labor now just like I look at our Medical Group: they're part of the partnership.

[End of Interview]