Why Kaiser Permanente employees might be on the verge of a strike

This article is from Capital & Main, an award-winning publication that reports from California on economic, political, and social issues.

For 13 years, registered nurse Kim Mullen has been part of a successful experiment: a collaborative partnership between the health care professionals at Kaiser Permanente and the executives who run the massive nonprofit. Decisions about the day-to-day delivery of care were shared among physicians, managers, and employees. Workers’ input was actively and continuously solicited. Staffing ratios, wages and benefits, patient care—all were subject to group-based discussion and problem solving.

“It’s a model that puts patients first,” says Mullen, who works at Kaiser’s South Bay Medical Center in the Harbor City area of Los Angeles. “We have always led in partnership. I now help teach that model of partnership. And we’ve known what the vision was—like a compass, with our patients’ care right in the middle.”

That working relationship is so ingrained in Kaiser’s corporate structure that it has a formal name—the Labor Management Partnership, or LMP—and a website. Begun in 1997, it has been at the center of Kaiser’s astounding growth over the past quarter century to 12.5 million members and nearly $89 billion in operating revenue last year.

The partnership also is under attack by its own corporate leadership, according to multiple health care workers interviewed by Capital & Main, who described the change in direction as surprising and concerning. And many of those workers fear that the ultimate result will be a talent drain among nurses and other professionals, increased employee turnover rates and worse medical outcomes for Kaiser patients.

“The whole thing is counterintuitive,” says Denise Duncan, an RN and the president of the United Nurses Associations of California/Union of Health Care Professionals. (Disclosure: The UNAC/UHCP is a financial supporter of Capital & Main.) “There has been a continued decline in how we collaborate and partner—and it is going to affect the people we care for.”

On Monday, UNAC/UHCP will announce the results of a vote among its 24,000 Kaiser employees in Southern California to authorize a strike. With nearly 80% of the union’s members having already returned their votes as of this writing, the energy appears pointed toward approval of the authorization. (The United Steelworkers Union Local 7600, representing another 7,400 Kaiser employees in the region, also is conducting a strike authorization vote.)

At issue is a proposal by Kaiser that union members say is intended to divide their ranks by creating two distinct wage scales: one for existing employees and a second, dramatically lower one for those who will come on board in future years. More broadly, the contentious negotiation signals a strong break from the past couple of decades, during which Kaiser and its unions forged a stable working relationship that limited turnover and promoted cooperation.

“I’m as baffled as anyone,” says Joe Guzynski, executive director of UNAC/UHCP and a chief negotiator for the union. “I can guess that they have had this plan set forth for a few years. . . . If we go on strike, there’s a real concern that the partnership would not continue.”

A strike would certainly signal the end of an era. The LMP, created 24 years ago in response to years of difficult labor negotiations between Kaiser and its employees, has grown to include 21 unions and 52,000 workers across the country as part of the Alliance of Health Care Unions, including Teamsters, engineers, food service workers, and others in addition to health care professionals. Among the members of UNAC/UHCP alone are nurses, pharmacists, rehab therapists, social workers, physician assistants, speech therapists, midwives, and optometrists.

Although the system wasn’t perfect, it worked well more often than not. Duncan, who has 37 years of nursing experience, says the LMP came about at a time when Kaiser needed a stable workforce in order to grow, and that recipe has held up for nearly 25 years.

“I came around [to the LMP] over time,” Duncan says. “And there is no question that we made extraordinary commitments to each other. We were innovative and bold in what we looked at, and that partnership kept us working together in almost every area of Kaiser’s operation. We had physicians and other health care professionals on our side of the table, and so did they—and the big idea was that the people who take care of patients need to be involved in the decisions surrounding that care.”

But after a long period of sustained growth and profitability—Kaiser made $6.8 billion in operating profits from 2018 to 2020 alone, according to the Alliance—the company began moving toward more aggressive negotiating tactics a few years ago, several nurses say. Then came this year’s process, and the proposed two-tier wage system. On the eve of the unions’ contract expiring October 1, Kaiser negotiators declined to offer a 30-day extension that union leaders had requested and anticipated would be granted.

“I do feel like the partnership is getting splintered,” says Mullen, the South Bay nurse. “Several of the new leaders at Kaiser don’t even seem to understand the processes that we use to negotiate—that we’ve always used. Never did I think that Kaiser would allow my contract to expire.”

In response to a series of questions about the current contract negotiation and the LMP posed by Capital & Main, Kaiser emailed a statement from Arlene Peasnall, its senior vice president of human resources. “It is not uncommon to continue negotiating without a contract in place, and we are committed to resolving this quickly,” Peasnall said. “We strongly believe that differences in bargaining are best worked out at the bargaining table, and we have a 24-year history of partnership with the unions in the Alliance that proves it.”

On its website, Kaiser makes its intentions more clear. It says that an “independent analysis” shows its union employees are paid on average 26% more than the market rate “in nearly all the markets where we operate, and in some cases much higher.” The system it’s proposing would reduce beginning wage rates for new employees by exactly that much on average, according to the UNAC/UHCP. (For established employees, Kaiser is offering a 1% raise.)

“Our offer includes wage increases that will keep our employees among the best compensated in health care,” the company says on its site. “One of our bargaining objectives is to bend the curve on wage growth to ensure that we can deliver on our affordability commitments.”

The two-tier wage system has a long and ugly history in the U.S. Its most common impact, union workers say, is to divide their membership and create resentment between the higher and lower classes of wage earners.

“It’s a cult classic among corporate executives where the companies are failing and profits are plunging,” said Jane Carter, a labor economist who performed an extensive study of the system for UNAC/UHCP, a copy of which was obtained by Capital & Main.

At various times, usually financially desperate ones, the system has been used by corporate giants in the auto, airline, and food service industries to restrict labor costs. Ford, for example, installed a two-tier system during the recession of 2009, and it took the United Auto Workers union a decade to finally eliminate it. The United Parcel Service (UPS) implemented the system in 2018 through a technicality, even though 54% of the Teamsters that participated voted against it, leading one driver to say, “This destroys unions.”

That’s the general idea, says Carter, who worked with the American Federation of State, County, and Municipal Employees before joining UNAC/UHCP last year. Her research indicates that the two-tier system often results in far less savings than companies might expect, in part because it creates a second class of workers whose entry-level wages are so far below those of their older peers that they will never catch up.

Such an approach, union members say, leads to resentment among workers toward each other—and in time, those resentments result in vastly increased rates of turnover, which gets expensive quickly. According to the Society for Human Resource Management, an association that lobbies on behalf of labor management, replacing an employee costs the equivalent of six to nine months of that employee’s salary to find and train a new hire.

“Companies found that [the two-tier system] actually decreased their profit margins, or just flatlined them, in part because of the turnover,” Carter says. “But what also came out of it is something that all corporate executives do really love: a divisive workforce, and more importantly, a divided union.”

In the case of Kaiser, one oddity about the approach is simply economics. Two-tier wage systems are often born of financial crisis, but Kaiser grew its membership by more than 590,000 patients over the past three years and has nearly $45 billion in cash reserves, according to the Alliance of Health Care Unions. It also returned $500 million in pandemic relief funding to the federal government in 2020 based on guidelines, eventually issued by the Trump administration, on whether to accept or return the money.

“Clearly, the sky is not falling,” Carter says. “Not only that, but their flawed market wage survey didn’t even include Kaiser’s own competitors—it included community-based hospitals and nursing homes. It was farcical. The agenda has nothing to do with cost cutting or savings. It has everything to do with cutting wages and benefits of the union and the Alliance, and dividing union members.”

Union negotiators and Kaiser executives were scheduled to meet again on Friday, October 7. “We’re trying to be as hopeful as we can,” Denise Duncan says. “Our members have been very transparent, and we hope to be near a resolution by the end of October. But it’s been tough. Through everything that’s happened since 1997, never did we look at a two-tier wage system.”

The concern from a health care perspective is somewhat indirect. Nurses fear that if their ranks shrink, in part because workers at the lower end of the two-tier scale leave for better jobs or don’t want the friction that comes from a divided workforce, then patient care will suffer. A 2018 report by the health staffing consultancy Mercer found that when fewer nurses are available, patient outcomes are adversely affected, leading to a higher rate of readmission to hospitals 30 days after first being seen.

There is also the long view to consider. Industry analysts predict a massive nursing shortage in the U.S. over the next decade, with California bearing the worst of it. By 2030, California is projected to have 44,500 fewer nurses than it needs, according to the U.S. Department of Health and Human Services.

For those in the industry right now, the figures are concerning. But they already know about shortages, as burnout and career change have been rampant during the pandemic. What they don’t know is what comes next at Kaiser.

“After what we’ve been through over the past year and a half, it’s just really hard,” Kim Mullen says. “The proposal hurts us, splits us. How can you have a healthy partnership if one partner is proposing something that it knows will cause internal strife and distrust for the other?”

Copyright 2021 Capital & Main