More than a name change at stake in Group Health-Kaiser deal

When a key player in a merger proclaims “This is an exciting new chapter,” as Dr. Steve Tarnoff, president of Group Health Physicians, said of Kaiser Permanente’s pending acquisition of Group Health Cooperative, one must always ask, exciting for whom?

Oh, and define exciting.

Adding Group Health and its 600,000 members in Washington and northern Idaho to its portfolio would be a coup for Kaiser Permanente, a large, complex and storied managed-care organization.

Kaiser already operates in eight states plus the District of Columbia and claims 10 million members, 177,000 employees and 18,000 physicians. Growing out of industrialist Henry Kaiser’s efforts to meet his workers’ comp needs in the 1930s, it pioneered the HMO/managed -care model.

The not-for-profit Kaiser entity includes health plans and hospitals, pulling down more than $56 billion in revenue and $3.1 billion in net income last year. The Permanente Medical Groups are for-profit corporations or partnerships of physicians that contract exclusively with Kaiser health plans.

(The second part of the name comes from Permanente Creek, which was near Henry Kaiser’s first cement plant in what is now called Silicon Valley).

In other words, everything about Kaiser Permanente is big.

How big a change this will be for Group Health patients remains to be seen. Like many aspects of the transaction, much remains to be revealed. It its news release, Kaiser said, “During this transaction process, nothing will change for Group Health patients, members and customers.”

But note the perhaps telling opening words of that sentence. After the transaction process, things might change a great deal. Group Health and Kaiser have operated closely on some fronts since the late 1990s, including reciprocal member services. But the two were separate and independent even though a merger was discussed but ultimately scuttled.

I wonder how much that earlier merger failed over a clash of values as much as how the deal was structured.

My experience with Group Health was much better than my previous interactions with the regimented, top-down-managed Kaiser doctors. To be fair, many people swear by Kaiser, but it would be unrealistic to expect good old Group Health to merely change the signs.

One sure shift is the loss of another important and unique locally controlled institution. Group Health was founded in 1945 by an alliance of labor, citizens and doctors seeking a community good through cooperative effort. It was not an industrialist’s pet project.

Group Health’s website history says critics used the words “radical,“ “controversial” and “socialist” to describe it. How Seattle.

Kaiser’s headquarters occupies several buildings in downtown Oakland, Calif. Group Health was never such a force in Seattle, but you can be sure the high-end decisions will soon be made in Oakland and some number of duplicative jobs here be axed. Will Kaiser use, for example, Seattle advertising firms for its promotion here? Unlikely.

Being a branch office is rarely happy, especially in terms of the high-wage jobs, talent, capital and spillover effect that headquarters bring. Seattle’s experience with California (Seafirst) and New York (Washington Mutual) buyers has been particularly bitter.

We also lose Group Health’s potential for innovation and growth as a stand-alone. The cooperative’s achievements were enough to draw national attention, including an admiring 2009 case study from the Commonwealth Fund.

Group Health was also the co-op model cited in a New York Times editorial criticizing congressional Republicans undermining other co-ops as part of their war against Obamacare.

Finally, Group Health is a substantial part of Seattle’s biomedical cluster with its research arm working with the University of Washington. Kaiser has indicated it would contribute some amount to research. But, once again, the local control and exchanging of ideas in the creative spaces of the city is lost.

Two years ago, Group Health CEO Scott Armstrong initiated serious cost cutting, including layoffs, to improve the cooperative’s balance sheet. Revenues rose modestly in 2014 but revenues from premiums were lower.

A significant blow to co-ops and smaller insurers came from a little-noticed provision that Sen. Marco Rubio, R-Fla., and a presidential candidate, tucked into a spending bill last year. It severely slashed funds that would have cushioned the plans if they carried too many sick people and didn’t generate enough premiums.

The health-care reporter Robert Pear wrote in The New York Times last week that Rubio’s “plan limiting how much the government can spend to protect insurance companies against financial losses has shown the effectiveness of quiet legislative sabotage” of Obamacare.

An observer with expertise in the field told me that the biggest incentive driving Group Health to Kaiser is “ongoing risk concerns.” Those risks ranged from the financial markets and malpractice insurance to having the funds to maintain facilities and expand.

So another local institution gets swallowed by the bigness complex. Things get bigger but not better.

Meanwhile, America’s for-profit medical system and its congressional stooges are doing everything they can to roll back Obamacare. And let’s not forget, this was the conservative alternative to universal single-payer, although conservatives disowned it once President Obama put it forward.

So the U.S. will continue spending more for health care than other advanced nations and getting only mediocre outcomes, except for the rich. Who benefits? Companies such as tax dodger Pfizer, which set the price for its new breast-cancer drug at $9,850 a month.

According to a report in The Wall Street Journal, the average cost of a brand cancer drug in the United States has doubled over the past decade to around $10,000 a month.

This is one glimpse of the many headwinds that Group Health, and even large insurers, face.

So, excited? No. How about outraged.