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Originally published Sunday, August 23, 2009 at 12:03 AM

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Does Group Health hold answers in health-care debate?

The Obama administration last week endorsed health cooperatives like Group Health as a potential alternative to a government-run insurance plan whose aim is to create competition among insurers and slow soaring health-care costs.

Group Health timeline

1947: Group Health Cooperative begins operating after acquiring Seattle's Medical Security Clinic, which had a hospital, five clinics, staff and an enrollment of about 10,000 people.

1949: Group Health sues the King County Medical Society over the society's refusal to accredit the co-op's physicians. The Washington State Supreme Court later orders the medical society to end its discriminatory practices.

1951: Aubrey Davis Jr., a federal housing official, is elected to Group Health's board of trustees. Davis goes on to serve seven terms as board president and three years as the co-op's chief executive.

1952: Membership reaches 22,440. The co-op's Capitol Hill campus grows, and it opens a clinic in Renton.

1956: At the annual membership meeting, a proposal is made to assign a "personal physician" to every member.

1958: Northgate Clinic opens.

1960: Central Hospital opens on Capitol Hill. Enrollment grows to 60,000.

1965: Enrollment reaches 85,000.

1969: Outpatient mental-health coverage begins.

1971: Lynnwood Medical Center opens. Enrollment stands at 169,000.

1976: Nurses strike for 28 days.

1977: Eastside Hospital in Redmond opens.

1983: Group Health Center for Health Studies, a research institute, is established. Group Health of Spokane becomes a nonprofit subsidiary.

1989: Nurses strike for more than a month.

1993: Alliance is formed with Virginia Mason Medical Center to share hospital facilities and services.

1995: Group Health ends the year with a $11 million loss.

1996: Becomes the first organization in the Northwest to fully automate its prescription-refill system.

1998: Posts a net loss of $10.4 million. The 24-hour consulting-nurse telephone service begins.

2000: MyGroupHealth Web site is launched for members.

2001: Online prescription-refill service begins.

2008: Bellevue medical center opens. Eastside Hospital closes.

Sources: "Group Health Timeline" by Walt Crowley and the HistoryLink staff,

Group Health Cooperative

Founded: 1947

Headquarters: Seattle

Membership: 600,000

Employees: 9,000, including 900 doctors and 1,600 nurses

Clinics: 26 Group Health medical centers throughout Washington and in Coeur d'Alene, Idaho.

Specialty services: Full range of medical services, including general surgery, physical therapy, audiology, ophthalmology, occupational medicine and hospice care. Does not operate hospitals except for an inpatient maternity ward in Seattle. Some services, including cancer care, obstetrics and neurosurgery, are sometimes provided at affiliate hospital.

Source: Group Health Cooperative

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When Mike Kreidler joined Group Health Cooperative as a staff optometrist in 1972, the co-op's reputation for innovation and quality was such that a Soviet delegation toured the Seattle headquarters to learn how a member-run collective managed to flourish in a capitalist country.

As salaried employees, the doctors and nurses at Group Health "paid a lot of attention to patients because they were effectively your bosses," said Kreidler, now the state's insurance commissioner.

Today it's the people seeking to change the nation's health-care system who are taking a closer look at the Seattle cooperative.

The Obama administration last week endorsed health cooperatives like Group Health as a potential alternative to a government-run insurance plan whose aim is to create competition among insurers and slow soaring health-care costs.

The idea of a public plan has drawn fierce opposition, and Obama now appears willing to try to achieve the same goal through private, consumer-governed health cooperatives.

Yet even some of Group Health's most ardent admirers warn that replicating the co-op would be difficult — and replicating it quickly practically impossible. Sixty-two years after its founding, Group Health remains one of just two major health cooperatives in the nation. The other is HealthPartners of Bloomington, Minn.

Creating health co-ops, after all, could involve building or assembling new organizations from scratch, including management, medical staff, clinics and customers.

And that "just doesn't happen overnight," Kreidler said. "Group Health has had 60 years" to gain 600,000 members.

What's more, though Group Health is well-regarded for delivering cost-effective, quality care, it hasn't avoided such problems as ever-rising premiums and periodic financial losses.

Still, even critics of the co-op option under discussion by Congress and the administration agree that Group Health's approach to health care is worth emulating.

It hasn't always been that way.

Founded in 1947 by maverick-minded physicians and supporters, Group Health was the first organization in the nation to offer both insurance coverage and comprehensive medical care. The integrated approach was so radical at the time that the King County Medical Society — derisively referring to the co-op as "Group Death" — denied membership to its physicians and blacklisted its patients.

Since that tumultuous beginning, Group Health has grown to become Washington's third-largest health insurer by enrollment, trailing Regence BlueShield and Premera Blue Cross.

It's a health-maintenance organization (HMO), essentially accepting fixed payments in exchange for providing all necessary medical care for members. Most of that care is delivered through clinics it owns and doctors it employs, although it does contract for hospital care and other specialized services.

Focus on preventive care

By philosophy and structure, Group Health emphasizes preventive medicine centered on primary-care providers.

Its founders regarded traditional fee-for-service medicine as expensive and corrupting. By employing its own doctors and operating its own clinics, Group Health has a built-in incentive to keep quality high and costs low, said Scott Armstrong, the co-op's chief executive.

Perhaps partly because nonprofit hospitals and health plans dominate the Puget Sound area, the region is considered a bastion of good, efficient care.

"There is something we do here that is really excellent. And Group Health has contributed to it," Armstrong said.

The co-op takes a deliberate, evidence-based approach to coverage decisions. When federal authorities ordered a massive recall of the popular arthritis drug Vioxx in 2004 because of elevated risks of heart attacks and strokes, it was a nonissue for Group Health. The co-op had never added Vioxx to its list of covered drugs.

Sometimes Group Health's penny-pinching ways can irk its members. The co-op encourages members to use pill cutters to cut double-strength prescription medication in half to shave drug costs — an inconvenience some members balk at.

Its dual role as an insurer and a health provider shapes its economic motives. Last year, the co-op shuttered its remaining hospital, in Redmond, saying it didn't make financial sense to keep the facility open as hospital stays grew shorter. Except for its maternity ward on Capitol Hill, Group Health now relies solely on partner hospitals to provide inpatient care.

"If your [only] business is hospitals, then you have to recruit patients," explained Mike Foley, a Group Health spokesman.

State Rep. Eileen Cody, D-Seattle, chair of the House Health Care Committee, has seen firsthand how different medicine can be when physicians aren't paid for each visit or procedure. Cody, a neuroscience nurse who has worked at Group Health for 31 years, said the co-op's doctors and nurses routinely consult with patients via e-mail or telephone.

"The doctors don't feel like they have to bring people in all the time," she said.

Group Health's integrated nature gave it the means and the incentives to become one of the nation's leading adopters of electronic health records. Its members enjoy conveniences like secure e-mail exchanges with their doctors and online appointments unavailable to most Americans.

And the trove of electronic medical and billing data gives the co-op a bird's-eye view of each patient's medical care as well each doctor's performance.

But ascertaining whether all this leads to less-costly care is difficult. The average premiums for Group Health policies are higher than for its main competitors. But that may be because the co-op generally sells richer benefits plans or has relatively few leaner individual policies.

No. 1 among HMOs

By and large, Group Health members seem to embrace the co-op. Complaint rates against Group Health are less than a third of that for Premera or Regence, according to state insurance records. The September issue of Consumer Reports ranks Group Health as the nation's best HMO, based on member-satisfaction surveys.

But Group Health hasn't escaped some of the same pressures buffeting the health-care industry. In recent years, the co-op has raised its premiums sharply to offset higher claims costs. Last month, for instance, rates for Group Health individual policies jumped by an average of 13 percent. That followed a 9.7 percent increase the year before.

Still, Group Health premiums generally have risen more slowly than those of Regence or Premera, according to state records.

Proponents of the co-op option are banking on the nonprofit, consumer-first ethos of cooperatives keeping a lid on costs and spurring health plans and providers to join in collaborative networks.

Lyle Mercer, who served on Group Health's board of trustees for more than two decades, is skeptical.

Mercer, 88, has been a member of the co-op since its inception. His wife, Barbara, is a former Group Health nurse.

Mercer said Group Health has moved far away from its democratic origins. A fraction of 1 percent of the co-op's members even bother to vote for the board of trustees, the governing body.

In many ways, Mercer said, Group Health has become indistinguishable from any successful corporation, from its sleek new headquarters on South Lake Union to Armstrong's $1.1 million annual pay package.

If co-ops are so great, "why aren't there more?" asked Mercer, who believes that a government-run plan would do more to help the millions who have no insurance or are struggling to afford coverage.

He believes only a public plan would be powerful enough to limit health-care costs without the overhead of multiple co-ops.

Cody, the lawmaker and Group Health nurse, also does not believe co-ops are the best blueprint for revamping health care.

"I just can't see it being a national answer," she said.

Armstrong, for his part, thinks a public plan would offer nothing beyond the ability to negotiate lower payments to doctors and hospitals. He says it wouldn't address a fundamental problem: a fee-for-service culture that rewards providers for doing more and more procedures, an approach rejected by Group Health at its founding.

The co-op option, Armstrong said, is "the best idea I've heard so far."

Kyung Song: 206-464-2423 or ksong@seattletimes.com. Seattle Times news researcher David Turim contributed to this report.

Copyright © The Seattle Times Company

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