Group Health Cooperative, Part 5: Reform and Renewal, 1981-1990

  • By Walt Crowley & The Staff
  • Posted 8/09/2007
  • Essay 8256

The health care visionaries who founded Group Health Cooperative in Seattle in 1945 were activists in the farmers' grange movement, the union movement, and the consumer cooperative movement. Their inspiration was Lebanese-American physician Dr. Michael Shadid (1882-1966), founder of the nation's first cooperatively owned and managed hospital (in Oklahoma). Dr. Shadid's crusade was to overthrow the traditional fee-for-service practice of medicine dominated by solo practitioners, expensive specialists, and private hospitals and clinics. Instead he advocated affordable, prepaid healthcare through the cooperative ownership of hospitals staffed by physicians -- practicing as a group -- who promoted the new idea of "preventive" medicine. Group Health Cooperative began providing health care after merging in 1946 with the Seattle-based Medical Security Clinic, a physician-owned group practice whose idealistic doctors also believed in preventive care. After years of struggle and despite virulent opposition by the medical establishment, Group Health became one of the nation's largest consumer-directed health-care organizations. This is Part 5 of a seven part history of Group Health Cooperative.

Reform and Renewal

The pace and scale of change since 1960 led to Group Health's thorough administrative reorganization in the 1980s. At the Annual Membership Meeting on April 25, 1981, former American Hospital Association director Gail Warden was introduced to the membership as the Co-op's first chief executive officer (CEO). At the same meeting, members imposed term limits on trustees and adopted a resolution calling for nuclear disarmament, a subject very much on everyone's mind as President Ronald Reagan pursued a harder line toward the "evil empire of the Soviet Union.

The Reagan Administration also promoted health-care reforms that effectively encouraged the formation of new HMOs to compete with Group Health. It forced the Board to revisit sacred principles of member and enrollee equity and to consider such heretical ideas as "experience rating to calibrate dues for different individuals and groups based on medical history, age, and gender. 

Corporation or Cooperation?

Gail Warden built a new executive team along corporate lines with operations vice president Phil Nudelman and finance vice president Grant McLaughlin. The role of chief of staff was recast as "medical director," a title first assumed by Dr. Turner Bledsoe in 1982. Co-op administration decamped from Capitol Hill and relocated to space leased in the new Elliott Bay Office Park west of Seattle Center. 

Some interpreted these organizational and physical moves as the corporatization of Group Health. They did not go down well with everyone, especially veteran members, who feared that capitalist imperatives might trump cooperative values. 

Group Health did not neglect its roots, however. In 1983, the Co-op created a new Foundation of Group Health with the purpose of supporting Group Health and community activities related to access to care, health promotion, evidence-based research, and the improved health of the communities served. The organization was formally incorporated on September 28, 1983. Sadly, that same day the Co-op's first African American president, Ida Chambliss, died of a heart attack during a humanitarian mission to Zimbabwe. Thus, her example of selfless service and Group Health's community role have been entwined from the foundation's birth.

The Board also created the Center for Health Studies, initially headed by Dr. Ed Wagner, which consolidated Group Health's research programs to pursue evidence-based medicine grounded in rigorous research science and clinical evaluations. All work published by those who work with the Center for Health Studies becomes public domain research. 

Territorial Imperatives

Group Health was committed to expanding its membership and geographic coverage in the mid-1980s and pursued a variety of strategies. It opened new medical centers in Everett, Bothell, and Silverdale. It took a bolder step in 1983 by purchasing an existing Spokane-area health plan with 20,000 enrollees. This was operated as a nonprofit controlled affiliate, Group Health of Spokane (later renamed Group Health Northwest), headed by Dr. Henry Berman as CEO. Although not a cooperative per se, former Group Health chair Dr. Charles Strother was named the new subsidiary's Board chair to help instill cooperative values in its operations. The subsidiary Board reported to the Group Health Board. 

Back in Seattle, Group Health's 1,200 nurses ended their long affiliation with the relatively conservative Washington State Nurses Association in 1983 and voted to certify a new, more militant bargaining agent: District 1199 Northwest of the National Union of Hospital and Healthcare Employees, now part of the Service Employees International Union (SEIU). The new union quickly negotiated a 5 percent pay raise with the Cooperative and signaled that it would champion nurses' economic and professional interests more aggressively than had its predecessor.

In 1984, Group Health contracted with its first non-staff physicians to serve Bainbridge Island members and to help run a new Bellingham Medical Center. The following year, it opened the South Tacoma Medical Center. The Cooperative also diversified its retail activities by opening specialized See and Hear centers for optical and auditory services and products. Despite this, enrollment dipped for the first time in Group Health's history from more than 330,000 in 1984 to 328,000 the following year. 

Applause and Scrutiny 

National recognition came on June 7, 1984, when The New England Journal of Medicine published a Rand Corporation report finding that Group Health Cooperative delivered equal care for much less money. The report published the initial results of a federally funded, eight-year comparative study of Group Health and other delivery systems, including fee-for-service delivery systems.

These kudos were offset by a wrenching series in The Seattle Times recounting longtime Group Health member Dan Barash's harrowing struggle to secure treatment for Lou Gehrig's Disease. Barash was denied coverage for additional tests and not informed about community resources. The failures in his case resulted from lack of coordination between primary and specialty care. 

The Cooperative made happier headlines in 1985 when Group Health member Joe Gardiner received the first transplanted heart in the Northwest at the University of Washington. This fit Group Health's values in pursuing science-based advances in medicine, and after studying the ethics issues and thoroughly polling the membership, the Board added organ transplants to the list of covered procedures for all members. 

In a major break with its founding egalitarianism, Group Health began "age rating membership dues and enrollment fees in 1986 to reflect the higher costs of treating older individuals. The slide in total enrollment continued in 1986 despite more kudos from the W. K. Kellogg Foundation and National Centers for Disease Control, and despite new long-term care coverage. However, non-group Cooperative memberships rebounded from a long decline, to 68,000. 

In 1986, voting members took the opportunity to restructure Group Health's governance to elect five trustees at-large and six by district, and they reorganized its administration by creating the position of President/CEO and by renaming the "president of the Board" as "chair of the Cooperative" during Aubrey Davis's tenure. The following year, central staff moved from Elliott Bay Office Park into a new Administration and Conference Center remodeled in the Seattle Post-Intelligencer's former Art Moderne home at 6th Avenue and Wall Street in Seattle's Denny Regrade neighborhood. 

Dr. Howard Kirz became medical director and the next year Aubrey Davis succeeded Gail Warden as President/CEO. A "blush of red ink, in Kirz's phrase, sent shivers through the organization as it juggled the cost of quality care against the price pressures of growing competition from other health plans. Some wondered if Group Health had lost its way, and Davis levied a dollar fine on any staff member who referred to Group Health as a corporation. In later years Davis remembered it this way:

"I had an empty candy jar and announced that we are a cooperative and not a corporation and that it would cost a dollar to get it wrong. Earlier I had seen a sign on a machine room door 'CORPORATE HEADQUARTERS' so I was looking for way to change the culture. Somehow this word spread like wildfire and every place I went for awhile people commented -- "thank god." 

"The next step was to announce what we are -- a health-care delivery system and not an insurance company. We use insurance as a payment system but that is incidental and not our purpose. We had been having a hard time for several years adapting to the changing market and the troops were uncomfortable and it helped to clarify our purpose and our function. I had decided that a CEO's most important role is to clarify goals and purposes and I still run into people who were grateful. I learned something about the value of symbolism in leadership."

Reform Revival 

In 1987, the long-muffled call for health-care reform gained volume and clarity. Led by State Senator and future Congressman Jim McDermott, MD, the State Legislature passed the Healthcare Access Act. This created a pilot Basic Health program to enroll 30,000 low-income residents in private health plans, and Group Health enlisted to serve 10 percent of participants. In the "other Washington, Senator Ted Kennedy won passage of a broadly accessible insurance plan for so-called "catastrophic illnesses under Medicare, but a cost-shy Congress repealed it a year later. Nevertheless, health-care reform was on state and national agendas to stay.

Enrollment began climbing again, and passed 350,000 in 1988, but the rising caseloads were a mixed blessing. Group Health nurses were the most acutely affected by cost-cutting and heavy caseloads. Things reached a breaking point on July 12, 1989, when most of District 1199 Northwest's 1,200 members walked out. They returned on August 20 to an average 19 percent increase, but the strike left deep wounds on both sides that would flare anew in coming years.

Group Health's public profile received a needed boost in 1990 when it enthusiastically signed up as health-care provider for the Goodwill Games in Seattle. And the Co-op went in a significant new direction that year by incorporating Options Health Care, Inc. (now Group Health Options, Inc.) as a wholly controlled, for-profit health-care service contractor. Through this new company, Group Health offered "point of service" health plans, which allowed members the choice of receiving services from providers other than Group Health physicians and medical staff and gave Group Health a venue from which to offer new coverage plans. Group Health Options, Inc. would be a major factor in the Cooperative's ability to compete in and survive the tumultuous health-care market of the 1990s as Phil Nudelman succeeded Aubrey Davis as President/CEO and Dr. Al Truscott became medical director.

To go to Part 6, click "Next Feature," to see Part 4, click "Previous Feature"


Walt Crowley, To Serve the Greatest Number: A History of Group Health Cooperative of Seattle (Seattle: GHC/University of Washington Press, 1995); Walt Crowley & the Staff, Group Health Timeline (Seattle: Group Health Coop/History Ink, 2007).

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