The Swedish/Providence Alliance

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The hours are long and chronic cases can be challenging, but family doctor Deborah Nalty of the Providence Physicians Group believes caring for her primary care patients is about the best job in the world. Now, because of a recent alliance between Providence Health & Services and Swedish Health Services, she hopes she’ll have even more to offer her patients. That picture includes a laser-like focus on primary care for all patients, the locus of how the two affiliated systems — they don’t like to call it a merger — hope to thrive and save money.

That’s no easy trick, given both the complexity of the American medical system and the rate of medical care inflation, which averaged 7.4 percent from 1980 through 2008. The rate has slowed since then — to about 3 percent annually — but that amount can eat up a good chunk of any savings a system might make.

And saving money is critical.

Last year, Swedish, which had operated as an independent entity for more than a century, became a part of Providence Health & Services, a 155-year-old medical system with 42 hospitals and 64,000 employees across five states. Prior to the merger, Swedish had spent heavily acquiring specialty doctors’ groups and urgent care facilities across the region in an effort to increase referrals to Swedish hospitals. An urgent care facility in Issaquah was upgraded to a full-service medical center last year at a cost of $360 million. That spending contributed to financial problems at Swedish. In the first two months of 2012, Swedish reported an operating loss of $16 million and announced hundreds of layoffs as the number of patients using hospital services in its overall system slipped.

Swedish blamed higher health-insurance deductibles and job market problems for the drop. And the merger might have occurred even if Swedish had not faced financial challenges. Medical organizations throughout the country are consolidating as they struggle to adapt to a changing health-care landscape. Rod Hochman, former CEO of Swedish, is now CEO of the Providence system.

One of the reasons Swedish and Providence joined forces was to develop a new western Washington care network that emphasizes family doctors, pediatricians and internists at the head of a patient’s care team. The network will be available to self-insured companies and payers starting in 2014. Nalty is confident the newly combined hospitals will focus heavily on primary care, an emphasis that can’t come too soon. So much medical care in the United States is fragmented, with extensive use of expensive specialists, that it’s difficult for many systems to manage many cases sensibly over the long term, or for patients and their care team to develop a bond, which studies show can lead to better health.

In addition, primary care doctors are much cheaper than specialists, with an average annual salary of $212,840 versus $396,233 in 2011, according to the 2013 Medical Group Management Physician Compensation and Production Survey report. “I just think if everyone in our society had a primary care doctor, it would 

save money on so many levels,” Nalty says. “Most well-trained family doctors can handle about 95 percent of what presents in their office.”

Not all are convinced the cost savings will automatically follow. Regence BlueShield spokeswoman Rachelle Cunningham declined to comment on the specifics of the two organizations but said that typically, such alliances “don’t seem to save money, and, in fact, have been known to increase costs.”

The optimists say the Providence culture is known to be careful about controlling costs. And the alliance rolls forward just as crucial aspects of the federal Affordable Care Act (ACA) unfold, ensuring that millions of Americans without health care will receive at least some level of medical coverage, Nalty points out. “I think in general, primary care doctors are excited about so many new people having insurance,” she says of the ACA.

The two organizations say they seek to serve large populations at a lower cost to accommodate the potential influx of patients from the insurance exchanges and Medicaid expansion under the ACA, which goes into effect in 2014. The first part of the cost savings has started, Providence and Swedish say, by the alignment of back-office administrative departments, legal, finance and IT systems as well as by standardizing supplies. In addition, the alliance will lean on analytics and care management services to review claims data and performance report cards provided to participating clinicians. There have been no layoffs since the merger, but some tightening of staff through attrition.

Each system is a nonprofit operating as a separate brand under the new arrangement. In the Puget Sound region, their combined forces are impressive, representing 120 physician clinics, eight hospitals, two ambulatory care centers and a network of home health, hospice and skilled nursing facilities. Altogether, the combined workforce in Western Washington totals more than 17,000, including 1,260 physicians and other health care professionals such as physician assistants and nurse practitioners. The “affiliation” is considered part of the overall Providence system, says Melissa Tizon, communications director for the venture.

Both entities are working to become accountable care organizations (ACOs), Tizon adds. ACOs are groups of doctors, hospitals and other health care providers who come together voluntarily to achieve coordinated, high-quality care to Medicare patients, according to that agency. If an ACO succeeds both in delivering high-quality care and spending health care dollars prudently, it shares in any savings it achieves for the Medicare program.

The affiliation will also offer both partners access to a wide range of ambulatory care centers, home-care services, skilled nursing facilities and other non-hospital care settings.

Joe Gifford, chief of strategic innovation for the Providence Western Washington Region, says the focus is on keeping people healthy, especially by helping patients manage chronic conditions and disease, thus assisting in prevention of complications and reducing the need for costly hospitalizations or complex procedures. That approach should save money, he says. “The idea which has become accepted is that primary care does the best job of keeping people healthy.”

Under the Swedish-Providence partnership, a patient’s primary care doctor will be the quarterback on his or her care in what is known as the medical home model, heading up a health care team that will be available via phone and email. Office visits under this model will be more comprehensive, and patients in need will receive support from a nurse care manager who knows the patient’s health history and stays in regular contact — especially in managing chronic conditions such as diabetes and to remind individuals about health screenings or prescriptions. They will also strive to use evidence-based medicine, a mode of care proven by studies.

If that format sounds a lot like another well-known Puget Sound health care organization, you’d be right. “It is Group Health,” Gifford acknowledges.

It’s widely accepted that 30 percent of patients are responsible for 90 percent of medical costs in this country, and that by keeping these patients healthier, nearly all health systems adopting the medical home approach will save significant amounts of money. Nalty has seen portions of it work in her own Monroe clinic, which tried innovations such as group appointments for pain sufferers who take narcotics.

“We address all the issues of chronically taking narcotics in the appointments,” she says. “Each patient can also learn from other patients. And we’ve done it for diabetes. That’s the future, shaking things up a bit.” When patients do need more advanced care, they will have access to specialists at Providence and Swedish and affiliated physician partners.

Health care providers of all stripes have been open to the new way of doing business, Gifford says. “There has been an attitudinal change among doctors and nurses,” he notes. “There’s a real enthusiasm to change the model. … There’s been no real resistance to the change. That’s really cool.”

Many proponents of coming health care reform hope high numbers of previously uninsured joining the system will buoy best practices panels for doctors of many disciplines, though it could take considerable time to realize.

In addition, supporters believe their size will enable them to reduce purchasing costs since they’ll be able to buy at greater discount because of their increased purchasing volume, Gifford notes. “Vendors will really pay attention to us,” he says. “We need scale. It’s a really new world, and you have to be a part of a system…you have to have size to do [health care] right.”

At Swedish, CEO Hochman’s focus was on growing revenues, his critics assert. If the newly combined hospital system is to succeed, he will have to become adept at finding a way to manage under a new approach that focuses more on lowering costs and less on generating new revenues for its hospitals.

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