Perhaps because Seattle's weather is uniformly dreary, residents expect a lot of choice in other areas, including coffees, microbrews and seafood. They are no less selective when it comes to healthcare. If one word defines the Seattle healthcare market, it's choice.
For example, Seattle residents were among the first in the country to enjoy coverage for alternative treatment, including visits to naturopaths and massage therapists.
An apt illustration of the city's love of choice is the massage bar at Sea-Tac airport. Across from a Starbucks coffee stand, the massage bar offers its own version of single and double espresso shots--15- and 30-minute massages, respectively--and an early-morning happy hour special.
In keeping with this emphasis on choice, most Seattle residents enrolled in managed care are served by a PPO or point-of-service plan rather than an HMO with a gatekeeper. In fact, in the town that produced Group Health Cooperative of Puget Sound, one of the nation's oldest staff-model HMOs, traditional-HMO enrollment is at a modest 23% of the 1.6 million population of King County, which covers Seattle and its suburbs.
So, depending on your point of view, Seattle's healthcare scene is either a delightful cornucopia of providers, plans and products or a splintered market.
No fire for consolidation. Nevertheless, hospitals are encountering little pressure to consolidate, perhaps because they've provided fairly steady prices to employers.
By doing so, however, they've taken bottom-line hits. Profit margins at the 18 hospitals serving the Seattle area run about 3% compared with the national average of 6%, according to SMG Marketing Group, a Chicago-based healthcare information and marketing consulting company (See chart, p. 96).
Still, Seattle-area facilities are efficient compared with most elsewhere, with lengths of stay averaging 3.9 days compared with 5.3 days nationally, and total patient days per 1,000 residents at 402 vs. 641 nationally.
The area also has a low ratio of hospital beds to population at two beds per 1,000 residents, about half the level in many East Coast cities. And hospital and health plan prices have been stable.
That's why employers haven't put much pressure on hospitals to consolidate, says Leo Greenawalt, president and chief executive officer of the Washington State Hospital Association.
Besides, says Nancy Giunto, administrator of 334-bed Providence Seattle Medical Center, 'we're blessed with a healthy and strong economy.'
There hasn't been a significant hospital closing in the area in 10 years, although one Group Health hospital converted to an outpatient facility, says Randy Revelle, urban program director at the hospital association.
And, unlike in other cities, no area hospital has been sold to a for-profit chain, although Columbia/HCA Healthcare Corp. had been planning an expansion in Washington before announcing its reorganization plans last November.
One reason for all this efficiency might be the salutary influence of Group Health's 50-year Seattle presence, observers say. Also, Regence Washington Health, the state's Blue Shield plan, upped the pressure on doctors to be more efficient in 1992 when it began physician profiling.
Still, says Darlene Corkrum, vice president of marketing and business development at 210-bed Virginia Mason Medical Center in Seattle, 'there's a lot of excess in the community, but it's hard to imagine the landscape of consolidation.'
Among Seattle hospitals, Virginia Mason is a notable exception in its ability to construct a successful partnership. Under a 1993 agreement, Virginia Mason and Group Health, which operates one hospital and several clinics throughout Seattle, jointly offer an HMO and several other health plans that allow the use of both delivery systems.
Last year Virginia Mason sold its own health plan to Aetna U.S. Healthcare so it could concentrate on integrating its hospital, 452 salaried physicians and research center. The downside to negotiating as an integrated system is Virginia Mason doesn't unbundle services, Corkrum says.
Other hospitals haven't fared so well in their pursuit of partnerships. In the most recent failure, 558-bed Swedish Health Services in Seattle and 149-bed Evergreen Community Health Care, a public district hospital in Kirkland, Wash., in late January called off their plans to create a joint operating company.
'Everybody has pretty much talked to everybody, and very few (hospitals) have developed sustainable partnerships,' says Providence's Giunto. Although some hospitals still are trying, 'I don't know anyone in town talking about a full merger or a consolidation of assets,' she says.
Specialty services heating up. One area where hospital competition is growing fierce is specialty services.
For example, Pacific Medical Center, a 300-physician group practice with a health plan, moved to Swedish in 1997. The group practice, known as Pac-Med, had bought Swedish's physician operations in 1995, establishing a tie between the organizations.
Now Swedish and Pac-Med are marketing a heart institute, which will assume risk for cardiology services, says Suzanne Scroggins, director of health plan services at Swedish. She adds that Swedish also plans to develop other niche products.
The Pac-Med relocation has bred 'tremendous hostility' in the market, says hospital association president Greenawalt.
Pac-Med used to be based at Providence, and when it moved, it took many of Providence's cardiology specialties to Swedish. The loss of Pac-Med cost Providence 11% of its inpatient business, Giunto says.
In an attempted rebound, however, Providence has formed a joint venture with 20 physicians. The venture, called the Providence Cardiovascular Institute, will specialize in minimally invasive cardiac procedures, Giunto says.
Providence also is aligned with Medalia, a 330-physician primary-care practice. And other joint ventures with physicians, such as an orthopedic specialty company, could be ahead, Giunto says.
Fred Hutchinson Cancer Research Center is another force that might elevate competition in specialty services.
Formerly based at Swedish, Hutchinson set up its own campus seven years ago. It recently affiliated with 208-bed Children's Hospital and Medical Center and 266-bed University of Washington Medical Center. That has caused 'a great deal of tension' because it cast a shadow on the view of Hutchinson as being an equal resource for all hospitals, Greenawalt says.
Health plan proliferation. The segment of healthcare most due for consolidation in Seattle appears to be HMOs.
Financially, most plans are struggling. According to SMG, the 1996 net loss per enrollee per month for the nine HMOs then serving the Seattle area was 88 cents. HMO profit margins average -0.56% compared with the national average of 0.52%, according to SMG. And losses are expected to continue in 1997.
Despite the slim pickings, for-profit HMOs are parading to town. Entrants include Aetna U.S. Healthcare; NYLCare; PacifiCare of Washington, a unit of PacifiCare Health Systems; and Qual-Med, a unit of Foundation Health Systems.
The largest HMO, not-for-profit Group Health, is attempting to solidify its position through a new 'virtual consolidation' with Kaiser Permanente. The arrangement allows Group Health to attract major employers that use Kaiser in other parts of the country. Group Health also can tap into Kaiser's national corporate programs, including its information systems.
With 150,000 enrollees, including its POS products, Group Health covers about 15% of the Seattle market.
Group Health's biggest rivals in the Seattle market are the state's two Blue Cross and Blue Shield plans: Regence Washington Health and Blue Cross of Washington and Alaska. The Blues' HMO enrollment, however, is small by comparison.
For example, enrollment in Regence's 10-year-old HMO Washington has remained level at a meager 20,000 for four years, although enrollment in the whole company is 1.2 million. Recently renamed RegenceCare, the HMO is being revamped to keep costs down and quality up.
At this point, very little of the company's business is capitated, 'at best 5% to 7%,' says Terry Rogers, M.D., executive vice president of external services. Rogers says he believes capitation will become an increasingly unpopular method of provider reimbursement.
Before Washington nixed its state health reform plan in 1995, 'everyone wanted to bear risk. Now they see the margins aren't there,' says Rich Nelson, Regence's president.
Regence was created last April out of two Blue Shield plans. Executives say the move has paid off in new contracts with multistate employers such as United Airlines and Northwest Airlines. With the exception of Regence's small HMO, its total enrollment is essentially evenly divided between PPO, POS and indemnity plans.
Still, according to preliminary figures, the company lost $12 million on its operations in 1997--although investment income kept it in the black--and $37 million the year before.
To improve operating profits, Regence demanded double-digit discounts from hospitals earlier this year, prompting outraged cries from hospitals.
'We're making it, but just barely,' says Virginia Mason's Corkrum. 'We're the people who deliver the care. Why squeeze us?'
Indeed, Regence's move might signal a turn in Seattle's relatively stable market, observers say.
The advent of for-profit newcomers hasn't increased commercial HMO enrollment, according to InterStudy, a Minneapolis-based managed-care research firm. Although Seattle once had the highest HMO penetration in the country, it now is about 23%, InterStudy says. In specific metropolitan markets across the country, HMO penetration ranges from 1% to 68% with a national average of 22%, it says.
Competition has, in fact, done just the opposite. As for-profit firms have trooped into Seattle, Group Health has opened up its basic HMO product to more providers in response to consumer demand for choice.
The array of products at Group Health can be dizzying. Counting Medicare and reciprocity arrangements with Kaiser plans, Group Health offers 10 health plans, says Diana Elser, the HMO's senior analyst in research and development.
With flat enrollment in the staff-model HMO and population growth outside the ring of its urban facilities, Group Health has had to offer products that allow enrollees to use other providers.
That's upsetting to many Group Health physicians who don't see how they can control medical care of enrollees who go out of network.
'Why don't (consumers) see the value of a closed, integrated network?' asks Louise Liang, M.D., who recently became Group Health's medical director.
Liang says she might be the first medical director to be brought in from outside the company in Group Health's history and her arrival is a sign the company wants a new perspective.
New entrants in the market, meanwhile, are tackling great odds by trying to establish themselves against Group Health's powerful brand name. 'It's very hard to sell an HMO product here,' Greenawalt says. 'Group Health has been here for so long; people have belonged forever.
'Those who don't want an HMO don't want it,' he says. 'There's incredible suspicion of the HMO market among those (residents who) didn't join (Group Health).'
Many providers also are launching health plans. They include Providence Health Plans--a Sisters of Providence plan--and First Choice Health Network, owned by Swedish and a consortium of other hospitals.
On the whole, area providers haven't done well with HMOs. For example, Unified Physicians of Washington, an HMO sponsored by the state medical association, failed last year.
Says Greenawalt: 'I think I could say with pretty strong certainty that in five years we'll still have the same hospitals as today. On the other hand, I would expect plans to consolidate by about three-quarters. The majority will not be here in five years.'
Hospital Ownership Number of % of % of Seattle-area Seattle-area community community community hospitals hospitals hospitals across the U.S. Government (nonfederal) 3 14% 26% Not-for-profit 18 86 60 For-profit 0 0 14
All data as of 1996 Source: SWIG Marketing Group
Integration Across Seattle the U.S. Percentage of facilities in an integrated healthcare network Hospitals 62.5% 39.5% Nursing homes 5.2 2.6 Medical groups 19.2 16.4 Home health agencies 11.5 5.7 HMOs 30.0 15.5 PPOs 5.0 6.1 Health system market share Hospital staffed beds 83.0% 50.7% Hospital admissions 80.2 64.6 IHNs with networkwide MCO contracts(*) 80.0% 63.0% lHNs with networkwide capitated contract(*) 40.0 26.0
Note: Integrated healthcare network is defined as an organization that aligns facilities through ownership or formal agreements in order to deliver integrated services to a defined geographic area. IHNs intend to market themselves to payers as one unit.
(*) Data as of 1997. All other data are for 1996. Source: SMG Marketing Group
Hospital utilization Across Seattle the U.S. Occupancy 48.6% 46.7% Average length of stay 3.9 5.3 Medicaid discharges/1,000 15.8 19.9 Medicare discharges/1,000 27.8 43.9 Patient days/1,000 402.0 641.0 Beds/1,000 2.0 3.1 Surgeries/1,000 84.0 88.0 Hospital finances Cost/admission $11,523 $9,316 Cost/patient day $2,615 $2,149 Net patient revenues $94.8 million $53.1 million Operating margin -3.26% -1.38% Profit margin 2.96% 6.22%
All data as of 1996 Source: SMG Marketing Group
Managed care Across Seattle the U.S. Total HMO revenues, $158.43 $140.32 per enrollee per month Inpatient expenses, $34.25 $34.31 per enrollee per month Medical loss ratio 90.1% 86.5%
All data as of 1996 Source: SMG Marketing Group
