Group Health Cooperative -- Part 7: New Beginnings, Old Challenges, 2001-

  • By Walt Crowley & The HistoryLink.org Staff
  • Posted 8/09/2007
  • HistoryLink.org Essay 8258

The health care visionaries who founded Group Health Cooperative in Seattle in 1945 were activists in the farmers' grange movement, the union movement, and the consumer cooperative movement. Their inspiration was Lebanese-American physician Dr. Michael Shadid (1882-1966), founder of the nation's first cooperatively owned and managed hospital (in Oklahoma). Dr. Shadid's crusade was to overthrow the traditional fee-for-service practice of medicine dominated by solo practitioners, expensive specialists, and private hospitals and clinics. Instead he advocated affordable, prepaid healthcare through the cooperative ownership of hospitals staffed by physicians -- practicing as a group -- who promoted the new idea of "preventive" medicine. Group Health Cooperative began providing health care after merging in 1946 with the Seattle-based Medical Security Clinic, a physician-owned group practice whose idealistic doctors also believed in preventive care. After years of struggle and despite virulent opposition by the medical establishment, Group Health became one of the nation's largest consumer-directed health-care organizations. This is Part 7 of a seven part history of Group Health Cooperative.

New Beginnings, Old Challenges, 2001- 

Group Health’s amicable but swift separation from Kaiser Permanente was completed in 2001. Dr. Louise Liang departed to pursue opportunities within Kaiser Permanente, and in 2002 Dr. Gary Feldbau succeeded her as the Cooperative’s medical director and president of Group Health Permanente.  

 The financial picture was looking better, but Group Health was not out of the woods yet. Changes in hospital services meant that the number of patients at Eastside Hospital continued to decline, and closure of its pioneering attention-deficit-disorder clinic in 2002 and its maternity unit in 2004 were interpreted by many as the beginning of the end for that facility as a full-service hospital. But the Cooperative refused to give up so easily, and engaged Children’s Hospital & Regional Medical Center as a partner in a new effort to redefine the facility’s mission through pediatric emergency care and inpatient services. An intensive feasibility study for the future was also launched.  

Dial Nine-Eleven  

The economic slump that occurred in reaction to the terrorist attacks of September 11, 2001, followed by the national dot-com bust, hit the Northwest hard. Layoffs and business contractions in the community caused Group Health's membership to shrink. In 2002, facing a potential $30 million shortfall, the Co-op itself trimmed more than 200 positions, laid off 150 employees, and cut other expenses. Cheryl Scott volunteered for a 20 percent pay cut, and asked senior executives to make similar sacrifices. 

The budget was stringent and Group Health's ability to invest was limited. Cheryl Scott and her leadership team understood -- after a decade of alliances and affiliations within a brutal anti-managed-care environment -- that the marketplace was somewhat confused and wary about Group Health and that the Cooperative’s market share was declining.

To strike back, the organization sharpened its focus and presented a more cohesive and welcoming face. In a series of strategies organized by executives Peter Adler and Peter Morgan, Group Health made dramatic improvements in access for consumers by launching same-day appointments for primary care and by adding self-referral for many specialties. The Co-op also began refurbishing outdated waiting rooms and it launched a popular multi-year television and radio advertising campaign, led by chief marketing officer Maureen McLaughlin. The ads were memorable for their use of humor.

Most significantly, the organization continued investing in the innovative and easy-to-use website, MyGroupHealth, which had been spearheaded by two medical directors, Drs. Matt Handley and Ted Eytan, and by James Hereford, then executive director of the Health Informatics Department. The website represents the most advanced electronic medical-records system in the country. It created a whole new way for Group Health members to exchange secure messages with their health-care team, make appointments, and access a vast body of health and wellness information. It gives individual members access to their medical records — including immunization histories, doctor visits, and lab tests and results.  It gives parents access to their children's medical and immunization records. 

MyGroupHealth enables members to order prescription refills online and to receive them by mail, and by 2005 Group Health pharmacies were mailing 50,000 prescriptions per month.  The website is an evolving tool that at mid-decade added an online health profile coupled with the services of a health coach -- health-care professionals trained to help people make health-improving behavior changes. By 2007 more than 100,000 Group Health members had registered and were making use of MyGroupHealth.   

Group Health continued to review its strategies, policies, and facilities in relation to its vision for the future. The Cooperative closed and sold the Kelsey Creek skilled nursing facility, given growing concerns over costs and questions about its relevance to Group Health’s core business. The Co-op also settled a class-action lawsuit accusing it of failing to fully cover alternative therapies such as naturopathy and acupuncture required under state law. Group Health was the third organization to be thus sued, and agreed to pay millions of dollars in refunds to reimburse members’ expenses in arranging such treatments. Despite this, the Co-op ended 2002 more than $6 million in the black. 

As the Cooperative began to recover its balance and confidence, in 2003 Dr. Hugh Straley succeeded Dr. Gary Feldbau as medical director and president of Group Health Permanente. Helping Group Health redefine its identity and navigate back to reliable financial health had been no easy task, and Cheryl Scott announced that she would retire at the end of 2004. She had presided over a revolution and, in her words, “the death of managed care” as a national health-care paradigm. Now Group Health would need a new strategy and a new leader for its future.  

After conducting an intensive national search throughout 2004, the Board ended up finding the replacement just down the hall, in chief operating officer Scott Armstrong. 

Passing the Torch

Cheryl Scott’s final year was no cakewalk. Nurses and other members of SEIU rejected Group Health’s contract offer in July 2004. Bargaining stalemated over the Co-op’s insistence that staff begin to pay a small portion of their own health-care benefits. In an era of skyrocketing health-care costs in which most employers were asking staff to share in the expense, Scott viewed the issue as one of fairness -- “Group Health staff had better and cheaper care than our members” — whereas the unions viewed it as an unjustified “takeaway.”

Both sides dug in, and roughly 1,000 SEIU members began a five-day strike on August 23, 2004. About a third of the union members crossed the picket line, and Group Health was able to keep all of its facilities open and operating normally through the showdown. That fall, the Co-op and its unions resumed negotiations and in January 2005, SEIU members voted nearly unanimously to accept a new contract with salary increases as well as increased staff contributions toward health-care costs. Both sides could claim victory, and signing the new contracts was one of Scott Armstrong’s first duties as Group Health's new President/CEO. 

Armstrong inherited the 132-bed, 1977-vintage Eastside Hospital, which he had once administered.  In 2003, as Group Health continued to examine its strategic path, it announced plans to phase out hospital services in Redmond and to affiliate with Bellevue's Overlake Hospital Medical Center for inpatient care for members in east King County. In April 2006 ground was broken for a $125 million medical and specialty center adjacent to Overlake’s campus off of Interstate 405. Plans were also announced to build a new primary care medical center near Redmond Town Center. Eastside Hospital will remain open through the transition in mid-2008, with -- at this writing -- no decision made as to the sale of the Eastside campus in that area's volatile but lucrative health-care (and real-estate) market. 

In October 2005, Group Health acquired Bremerton-based KPS Health Plans, which had been in receivership under the control of State Insurance Commissioner Mike Kreidler. Established as Kitsap Physician Services after World War II, KPS was one of the state's last doctor-owned medical bureaus.  But costly malpractice lawsuits and the turmoil of the late 1990s and early 2000s had taken their toll.  After considering several candidates, Kreidler approached Group Health about acquiring the health plan. Aided by chief legal counsel Rick Woods, Group Health did so.  The Co-op viewed KPS Health Plans as a natural fit with its mission and with its strategy to expand membership and acquire a greater variety of insurance products. Along with KPS, Group Health acquired its PPO (Preferred Provider Organization) insurance-product capability. (A PPO is combination of selected physicians, hospitals, and other care providers organized by an HMO or other entity to offer health-care services through a plan or benefit program.) 

The Cooperative acquired KPS Health Plans by committing to repay note-holders if KPS performance improved (it was not an outright purchase), infusing cash into the operation, and taking majority control over the KPS Board. Even though Group Health had three medical centers (Port Orchard, Silverdale, and Poulsbo) in the community, many in Kitsap County opposed the deal -- expressing concern that the local health plan was being taken over by a large "outside" entity. But Group Health saved KPS from certain extinction by paying off its debts, while leaving it to function under the leadership of President and CEO Elizabeth A. Gilje. Although membership in KPS decreased when the sale was announced, most subscribers remained, happy to learn that their choice of doctors and health-care plans would remain the same.  

In Seattle, the Co-op faced the end of its 20-year lease on the Administration and Conference Center in the Seattle Post-Intelligencer’s former headquarters in the Denny Regrade. This deadline offered Group Health the opportunity to join with Microsoft co-founder Paul Allen’s Vulcan Corporation in ownership and development of a new headquarters in the heart of the emerging South Lake Union neighborhood -- ground zero for Seattle’s burgeoning health sciences and biomedical research community. On May 7, 2006, ground was broken for the building at the intersection of Westlake Avenue and Terry Street. The Cooperative will occupy the building in fall 2007, a fitting milestone to mark Group Health's 60th anniversary as one of America’s oldest, largest, and most respected consumer-governed health-care organizations.  

In Spokane, a new South Hill Medical Center is planned to replace the South Regal Medical Center. 

Beyond bricks and mortar, Group Health has allowed itself to dream again of expanded service, lower costs for enrollees, a renewed commitment to preventive care and health promotion, continuing investment in innovative technology, and a stronger voice in shaping state and national health-care reform. Scott Armstrong and chair of the Cooperative Ruth Ballweg laid out a three-prong strategy for improving health-care outcomes, satisfying consumers, and devising new, more flexible health-care plans and benefits. “Our goal,” they wrote in the 2006 Annual Report, “is to create ever greater value for our patients, our purchasers, and our people.” 

Investments in service and access have resulted in customers reporting much higher satisfaction, thanks in part to the strategy of holding open 20 percent of primary care appointments at the beginning of each day to serve patients with pressing needs. More than 90 percent of Group Health patients seeking lab or pharmacy services are served within 10 minutes. Fast lab results and the 24-hour telephone-consulting nurse give consumers easy access to their medical team and to health information. 

Starting in 2003, Group Health focused its community outreach on cycling as a healthy lifestyle choice. The Co-op became title sponsor of the Northwest's most popular bicycle event, the Group Health Seattle to Portland (STP) Bicycle Classic. By 2006 hundreds of staff and members were joining Scott Armstrong, Hugh Straley, and two Board members, Jerry Campbell and Rosemary Daszkiewicz, for the 206-mile Seattle-to-Portland ride. In addition, the Co-op sponsored the Group Health Velodrome at Marymoor Park in Redmond and Team Group Health, a women’s cycling club. By 2007 the Co-op was involved in more than 70 cycling events across the state from Bainbridge Island's "Chilly Hilly" to Richland's 100-mile "Inland Empire Century." Group Health Basics of Bicycling program and Group Health Bike Rodeos and Bike Camps (in partnership with Cascade Bicycle Club’s Education Foundation), now teach school-age children how to ride safely and maximize fun.  Group Health staff members volunteer to provide first aid at cycling events, to give presentations on riding safely at REI and other bike stores, and to offer free bike fittings at cycling expos.  

Group Health's national leadership in information technology continued with the introduction of a new Pictorial Archiving Communications System. This system stores every X-ray, CT scan, and MRI image digitally so that doctors can call them up on the computer at any time. And its commitment to evidence-based medicine continues. For example, the Co-op declined to put the drugs Vioxx and Phen Phen in its formulary (list of covered medicines) because evidence for their safety was lacking. (They were taken off the market after they were shown to cause injury, and in some cases, death.)

The Center for Health Studies, now more than 20 years old, has continued to conduct an array of public domain research. Especially notable has been Dr. Ed Wagner's nationally and internationally influential work, done through the Center's MacColl Institute for Healthcare Innovation, on treating patients with chronic conditions. Other areas of research have involved children's asthma, healthy aging, and intimate partner violence and women's health. Today Dr. Eric Larson serves as executive director and senior scientist. 

The Co-op extended its care to the broader community in 2006 by initiating a partnership with King County and contributing $1 million to create a coverage program for some 16,000 children in King County who fall into a coverage gap -- they don't qualify for assistance programs but can't afford health care. Group Health put another $1 million into a fund within the Group Health Community Foundation to create more access to care for kids across the state. In 2007 the Co-op dramatically cut its rates for the Basic Health Plan, which provides state-subsidized benefits to nearly 100,000 low-income Washingtonians. This rate-cut in the member-paid share will enable thousands more poor families to gain access to care at Group Health. 

Still, the problem of access to health care is daunting in a country where 47 million Americans are without health insurance. Of these, 600,000 live in the state of Washington. As Scott Armstrong expressed Group Health's position, "That so many lack access to health care is socially indefensible and morally wrong." In 2004 Group Health members, led by chair of the Cooperative Grant Hendrickson, passed a resolution to promote universal coverage — and trustees held dialogues on the topic around the state. Physician assistant Ruth Ballweg, associate professor and director of the MEDEX Northwest Physician Assistant Program at the UW School of Medicine, was elected chair of the Cooperative in 2005, and she enthusiastically carried this work forward. As befits its tradition of engaging in political action and lobbying for reform, the Co-op has put national health-care reform on its agenda.

Today Group Health Cooperative is a large organization. With nearly 10,000 employees (including the medical staff's group practice, Group Health Permanente), it is among the largest employers in the state (along with Boeing, Microsoft, and Alaska Airlines), and itself spends nearly $60 million a year on medical benefits for its employees. It has some three million square feet of facilities, and receives some two million visits every year. Still, in 2006 membership declined by 27,000 to just below 525,000. The leadership's assessment of this problem is that Group Health is still too expensive and too slow in responding to changes desired in the health-care marketplace. For example, in 2002 there were five Medicare insurance products in the Washington market, and Group Health's was the dominant one. By 2007 there were a hundred such products, and Group Health's is no longer dominant. The goal is to turn that around.

As Group Health looks to the future, its vision harks to the past. Group Health’s founders might not recognize its web-based services and new facilities. And some might not embrace its expanding use of different medical-coverage models and non-staff physicians to provide members access to care in new markets. But they would have no trouble seeing that the organization they founded still seeks to transform health care -- innovating to improve the health of its customers and the communities it serves.  

Today Group Health Cooperative is a nonprofit health-care system that integrates care and insurance. It remains a consumer-governed organization designing, financing, and delivering high-quality health care. As a trusted partner to those it serves, its values still involve respect for one another; integrity in coming through with promises; applying scientific discipline in providing consumers with the best-available knowledge and advice; and a pioneering spirit, proactively seeking new ways to provide care and coverage. In short, Group Health's mission is still to serve the greatest number of consumers with the highest-quality health care, as affordably as possible.

End of Part 7 of a seven-part essay. To reach Parts 1-6, click "Browse to Previous Essay" back through to the beginning.


Sources: Walt Crowley & the HistoryLink.org Staff, Group Health Timeline (Seattle: Group Health Coop/History Ink, 2007).

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