Executives at Group Health Cooperative of Puget Sound and Kaiser Permanente's Northwest Division have rejected a full merger in favor of a proposal to create a holding company to unite the organizations.
Under the proposal, which must be approved by both boards and by the cooperative's members, "we still become one company, with three subsidiaries," said Philip Nudelman, president and chief executive officer of Seattle-based Group Health.
The three subsidiaries are Group Health Northwest, an affiliate based in Spokane, Wash.; Group Health Cooperative; and Kaiser Northwest, based in Portland, Ore. The new company, which would be called Kaiser Group Health, would be based in the Northwest and controlled by Kaiser Permanente, based in Oakland, Calif., he said.
The consolidation would create a not-for-profit HMO with more than 1 million enrollees in the Northwest. The combined organizations would have about $13 billion in annual revenues.
Group Health's board is scheduled to consider the proposal in December. If the board approves the proposal, members of the cooperative would vote on the plan in the early spring. Kaiser said its board would vote on the proposal after Group Health's members cast their ballots.
Kaiser and Group Health announced last month they were exploring a closer affiliation to attract large purchasers who seek health plans that can offer regional coverage. Consolidation would bring economies of scale and other efficiencies. Executives at both companies said a merger was the preferred option.
Their thinking has changed. "After we looked at a number of other structures, we are considering one that's very similar (to a merger) but that protects the local identity" of Group Health and Kaiser, Nudelman said.
"The merger doesn't do that," he said. "We need to protect and preserve those local identities. If we merge, one of the companies goes away."
In creating a holding company, identity is assured and consumer governance at the local level for Group Health is then assured, he said.
Besides, merging the companies would be difficult because of "50 years of cultural history" that separate Group Health and Kaiser, Nudelman said.
The three subsidiaries would retain their separate local delivery systems but would take advantage of centralized information systems, billing, marketing and finances, he said.
In the holding company model, finances would be consolidated, but "you don't put all the assets into the same basket even though they are all part of the same company," Nudelman said.