A closer look at Group Health Cooperative

In the interest of better understanding Group Health Cooperative (GHC), I’ve contacted the Group Health Center for Health Studies to ask about their co-op’s experience and what it tells them about the prospects for cooperative-based health care reform.

I first spoke with executive director Dr. Eric Larson, who has been the center’s executive director since 2002. Larson referred me to senior researcher Michael Von Korff, who has been studying health services and economics with the center since 1983.

Larson described the center as a non-proprietary public interest research group inside GHC. It develops “open source” research, which is supported by a variety of organizations, including the National Institutes of Health, Centers for Disease Control and Prevention, and Food and Drug Administration. About 93% of its funding comes from outside of Group Health. The center is guided by an advisory board appointed by GHC’s president; roughly half of the board’s members are from outside the co-op and related organizations.

Not wanting to beat around the bush, I asked Larson what he would say to those who dismiss their research, such as the recently announced “Medical Home” study, which established that GHC is continuing to make cost improvements, as propaganda for the cooperative. “It’s terrible nonsense,” he said. “I do research because I want to discover things…Group Health is happy to have us, but sees this as a public contribution and not research and development.”  

Larson reports that the Medical Home study was paid for with discretionary funds. It examined a pilot project through changes over a three year period, and compared its results with the other clinics in the system. This study does not directly compare GHC’s cost and quality with similar competitors, but it is a part of a long-standing pattern of Group Health leading the industry in its markets. During the 1970s Group Health was providing a dramatically better level of care, but Larson acknowledged “the rest of the world has caught up with that.”

He could not predict whether GHC could be reproduced on a national scale, but suggested that there might be some “diseconomies” related to size. “A co-op is a local phenomenon,” he said. “It has legs. I just don’t know what it would look like.”

Asked about any savings from a co-op over a public plan, he said it depends how it is set up. “It could be more cost effective,” he said, pointing to the inflationary potential of having policy set through government processes.

Another model that has sparked interest in recent years is the “Accountable Care Organization” (ACO), which is a group of providers who take overall responsibility for the health of a group of patients. An ACO can sign contracts with the government to take Medicare patients at a flat rate. If they provide good care at a savings, they keep most of the savings. This sort of arrangement could be used in the event that a co-op plan is implemented, and Larson would envision such patients as full-fledged members of a cooperative.

“It’s perfectly compatible,” he said. “In some ways, Elliot Fisher (one of the ACO concept’s originators) was thinking about organizations like ours, and how you transplant us into a community without something like Group Health.”

Von Korff describes GHC’s role as being a leader in delivering quality care at lower costs, by keeping people out of the hospital. Their once-radical practices have become commonplace, although not always done right. “Most companies have found out how to do a reasonably good job of (reducing hospitalization), sometimes in good ways, sometimes in bad.”

“We are in a low cost region, so our premiums are not appreciably lower than the competition,” he said. “Maybe part of the reason for low costs in this area is Group Health.”

Von Korff says that co-ops have “predilection to do the right thing.” But even if GHC’s presence is responsible for the Northwest’s lower costs, that is not necessarily because it is a cooperative. Other elements are in play. 

In addition to the savings of having an integrated health system, he sees having doctors on a salary as a major reason for low costs at GHC, because “their incentives are different” than doctors whose income is based on how many expensive procedures they complete.

When a patient visits multiple independent specialists, Von Korff says the problems can increase. “That person is going to get really bad care,” he said. “There’s no accountability for that kind of care.”

Von Korff is generally encouraged by the current debate on health care reform. “For the first time people are talking about the real issue, and the real issue is money,” he said. “Covering more people is important, but the barriers are all money.”

Von Korff thinks that the specifics of alternative plans are critically important, and even a single payer scenario might not address the cost issue. “Some people want to solve the problem with market forces. Others want to solve the problem with single payer. Both are a little simplistic,” he said. “The real question is how to structure health insurance so that it truly controls health care costs, minimizes administrative overhead and billing costs, reduces unnecessary care and price inflation, and revives the primary care sector.

So should a co-op wear the white hat in the market for health care?

“I don’t see any magic in the co-op structure that will necessarily solve these cost problems,” he said. “It could. It’s just about market power.”

Ultimately, the main issue for Von Korff is cost. “How do you create an organization with the best value?” he asked. “Group Health gets you part of the way there, but not all.”

He sees the single best idea from the Clinton reforms as a health care exchange, and is glad that idea is being considered. “Something like that needs to happen so small businesses can compete,” he said, noting that skyrocketing premiums following a large claim can be devastating to the bottom line.

“The action is around administrative costs and how much paper people are running around.” He suspects this could be 20-30% of total costs, but nobody really knows. “It’s a little bit of a head-scratcher, but it’s an awful lot of money.”

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