Citing the need to compete against national firms, Seattle-based Group Health Cooperative of Puget Sound, a large regional HMO, and Virginia Mason Medical Center have formed a joint operating company.
The new company-governed equally by both organizations-will manage day-to-day operations, including budgeting and planning, at the HMO and at Virginia Mason. Virginia Mason, also in Seattle, is a not-for-profit health system including a hospital, 19 clinics and a research center.
The two organizations also have consolidated their health plan subsidiaries, and there are plans to consolidate services at their hospitals, where patient census continues to fall. Most inpatient care would take place at the Virginia Mason facility, and Group Health's hospital would handle outpatient services.
Each company will retain its separate assets and governance. But the operating company, a strengthening of the 1993 alliance between Group Health and Virginia Mason, is viewed among many area industry observers as a step toward a merger. A spokesman for Group Health, however, said the companies have no plans to merge.
The alliance was needed to reduce costs and premiums because "healthcare purchasers have made it clear that they are willing to end long-standing relationships if our price isn't competitive," Group Health said in a written statement.
But the alliance has been controversial because Group Health is a not-for-profit consumer-governed healthcare organization, whose members elect its board, and Virginia Mason is not a cooperative.
The organizations say that together they can give better care, attract more patients and improve efficiencies.
But forming the alliance will meet just 50% of Group Health's cost-reduction goals. To reduce costs, about 300 administrative positions have been cut over the past three years, a Group Health spokesman said. The plan employs 9,000.
Group Health also is considering laying off "a small number" of its 890 physicians to bring its provider-consumer ratio in line with other health plans, the spokesman said.