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Seattle Hospital Competition Heats Up, Raising Cost Concerns

Hospitals Vie for Market Share in the City and Seek New Affiliations and Growth in Affluent Suburbs

News Release
Dec. 2, 2010

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON , DC—Known as a market where hospital systems focus on particular niches rather than head-to-head competition, Seattle now faces growing competition as hospital systems vie for market share in the city and seek new affiliations and growth in affluent suburbs, according to a new Community Report released today by the Center for Studying Health System Change (HSC).

Market observers agreed that Swedish Medical Center, the area’s largest hospital system, has ratcheted up the level of competition, for example, by affiliating with a hospital in Edmonds, north of Seattle; opening a freestanding suburban emergency department (ED), with plans for three more near competing suburban hospitals; and acquiring an equity interest in a large multispecialty physician group, according to the report. Some viewed Swedish’s aggressive suburban growth partly as a defensive move to counteract efforts by suburban hospitals to expand specialized-care capabilities to keep patients in their communities rather than referring them to Seattle hospitals.

“There was disagreement about whether the more intense hospital competition was desirable or not,” said HSC President Paul B. Ginsburg, Ph.D. “Critics worried that Swedish’s aggressive growth strategy would create excess capacity and increase system costs, while others believed additional capacity was needed to meet the needs of a growing population.”

In April 2010, HSC researchers visited the Seattle metropolitan area—King and Snohomish counties—to study how health care is organized, financed and delivered in the community. Researchers interviewed more than 50 Seattle health care leaders, including representatives of major hospital systems, physician groups, insurers, employers, benefits consultants, community health centers, state and local health agencies, and others.

Seattle is one of 12 communities across the country tracked intensively as part of the Community Tracking Study site visits, which are jointly funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform. HSC has been tracking these communities since 1996. Key findings of the report, Seattle Hospital Competition Heats Up, Raising Cost Concerns, which is available online at http://www.hschange.org/CONTENT/1164/, include:

  • As hospital competition intensifies, physicians, who previously shunned hospital overtures, increasingly were seeking the security and stability of employment or other affiliations with hospitals.
  • Health plans reportedly were competing more on price in light of larger-than-needed financial reserves, and employers were encouraging plans to develop new products, including plans with narrow- and tiered-provider networks that encourage consumers to consider cost when choosing providers.
  • A robust safety net, with generous state public coverage programs and strong and growing community health centers, has maintained relatively good access to care for Seattle’s low-income residents. But now the safety net faces significant pressure from growing state budget deficits, complicating the state’s preparation for coverage expansions enacted by national health reform.

The Seattle area hospital market is less concentrated than markets elsewhere, according to the report. The three largest systems are Swedish, UW Medicine, which is owned by the University of Washington; and Providence Health & Services, a multi-state Catholic system that operates Providence Regional Medical Center Everett in Snohomish County. Seattle has long been home to large physician groups, particularly multispecialty practices, most affiliated with specific hospital systems.

Some observers expected hospital consolidation to increase as stand-alone hospitals consider joining larger systems, just as Seattle-based Northwest Hospital and Medical Center did in late-2009 by affiliating with UW Medicine. One hospital respondent said, “I would guess that most community hospitals are in serious conversations with consultants on whether they can make it on their own or if they should partner with someone.”

Earlier in the decade, hospital efforts to employ physicians were often resisted by independent physicians. Now, however, many physicians are seeking the security and higher compensation that larger organizations can provide, and most major Seattle hospital systems were actively seeking to employ physicians to shore up their referral bases.

The Seattle market is unusual because it has two Blue plans, Premera Blue Cross and Regence Blue Shield, competing directly with one another across all market segments, primarily through preferred provider organization (PPO) product offerings. Another unusual facet of the Seattle commercial health plan market is the presence of Group Health Cooperative, which originated as a group-staff model health maintenance organization (HMO) but now offers PPOs and other insurance products.

There was a consensus among health plan respondents that the Seattle market has grown more price competitive in recent years as some plans took action to reduce financial reserves by offering smaller premium increases in the group market. Nonetheless, all three major nonprofit plans have come under fire in the media recently for maintaining large reserves as they sought significant premium increases in the much-smaller individual insurance market.

The Seattle/King County-area has a robust safety net anchored by UW’s Harborview Medical Center and a network of federally qualified health centers (FQHCs). In Snohomish County, Providence Regional Medical Center Everett serves as the main safety net hospital, and several FQHCs provide access to primary care for low-income and uninsured people. The state has sought to expand health coverage aggressively, often though optional programs solely funded with state dollars. But, a projected 2011-13 state budget shortfall of $5.7 billion means all optional state health programs are at risk.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded in part by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research.

 

 

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