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Sarah Weiser / Herald file 
(click to enlarge)
Dr. Joseph Austin, a cardiac surgeon at Providence Regional Medical Center Everett, and Derek Braaten, 4, of Everett, share a laugh as Austin helps Derek try out operating loups typically used in surgery at the center’s Cymbaluk Medical Tower open house on June 11, 2011. The new $460 million tower was open to the public for tours. Hospital staff, nurses and doctors talked about the new facilities.

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Jim Davis, Editor
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Published: Thursday, December 29, 2011

Medical competitors see eye to eye

AFter major expansions in 2011, Providence and Swedish want to work together

The complex affiliation planned between Providence Health & Services and Swedish Health Services announced last October is expected to move ahead in 2012.

But no one knows for certain exactly how everything will work — or whether government regulators or religious controversies will even allow the affiliation to proceed.

Spokespersons for both Providence and Swedish told the SCBJ in early December there are no new developments to be announced since the plan was unveiled in October.

Nationally, there is a trend toward mergers, partnerships and acquisitions between health-care organizations, not necessarily for larger profits but rather for economic survival.

Increasingly, a variety of health-care entities are preferring to try to survive together in highly competitive markets rather than battling head-to-head until only one is left standing.

Until a few months ago, Providence and Swedish were strong competitors in Snohomish County. Long-dominant Providence opened a new 12-story, $460 million medical tower in Everett in June 2011. Swedish took over administration of the former Stevens Hospital in Edmonds and later in the year opened a new satellite emergency clinic in south Everett near 128th Street SW and I-5.

A flurry of advertising pitting the two expanding health-care systems against each other subsided late in the year as Seattle-based Swedish announced a $19 million shortfall in September and eliminated around 300 jobs. Providence Regional Medical Center Everett announced shortly afterward it would cut up to 175 jobs because revenues were running $10 million behind budget numbers.

The slack economy and rising medical costs have combined to create financial challenges for Providence and Swedish, along with cuts in insurance reimbursements and government Medicaid payments, said the organizations’ CEOs. They believe that working together may help both organizations survive a perilous economic time where fragmented health care becomes costlier and untenable.

The CEOs said it explains why a form of truce emerged in a late 2011 announcement that the two systems would keep their own identities but work cooperatively as an alliance to save money and improve patient services.

Swedish President and CEO Rod Hochman told news media, “Swedish will remain Swedish and Providence will remain Providence. That makes this an affiliation versus an acquisition.”

Dr. John Koster, president and CEO of Providence Health & Services, said Providence will set up a new Western Washington region, with Swedish operating within that region with its own identity intact.

Together, Providence and Swedish have a combined revenue of $3.4 billion, employ thousands in Snohomish County and continue to serve tens of thousands of patients each year.

Last fall, the two CEOs said that specialized Swedish neurosurgeons might treat a Providence patient in Everett and that Providence could share an internationally acclaimed blood conservation program with Swedish.

Hochman said issues such as who will lead the organization or how it will be governed haven’t been determined yet, adding that forming a cooperative medical organization between a religious-based nonprofit like Providence with a large secular medical system may be the first such venture in the nation.

He said the need to make big moves fast is spurred by the challenges of providing health care in a competitive, costly market. Bringing the two systems together in a cooperative agreement will help identify the most effective clinical practices of each entity and provide them more easily to physicians, other providers and patients.

“Health care must be more cost effective,” Hochman said. “The only way you get there is by clinical transformation, change led by health (care) providers, not by a bunch of bureaucrats.”

Koster said the partnership is the “the best solution for (health care) affordability for our community.”

The affiliation, a product of months of meetings and planning between Providence and Swedish, is possible primarily because of their similar approaches to health care, collaboration, charitable care, not-for-profit status and their use of the same brand of electronic medical records systems.

Providence brings to the table a wide network of hospice care, home health, nursing homes, assisted-living facilities and senior housing. Swedish has well-developed, high-level health-care services, including 75 neurologists and neurosurgeons on staff. Patients from each provider’s roster will have access to the resources offered by the partner.

There are still challenges to be met, including anti-trust reviews by government agencies. At this point, the CEOs said no one is sure which agency may be reviewing the agreement for approval. Presumably, the Federal Trade Commission may be one, along with the Washington State Attorney General’s Office.

Under the present agreement, Swedish would become part of Providence Health & Services, which operates 27 hospitals in five states from Alaska to California and has 214 clinics, with nearly 53,000 employees.

Swedish Health Services has five hospitals in Seattle, Edmonds and Issaquah, more than 70 clinics and 11,000 employees.

Perhaps one of the biggest challenges facing the hospitals’ alliance is women’s reproductive services. Providence, a Catholic network of health-care facilities, bans all abortion services while Swedish has provided abortions until now. When the agreement with Providence is finalized, Swedish will stop performing abortions.

A similar conflict arose in 2000, when Swedish acquired Providence’s Seattle hospital, now Swedish/Cherry Hill. At that time, Swedish stopped providing elective abortions, which amounted to fewer than 50 procedures annually at its First Hill and Ballard campuses. Swedish later resumed elective abortions at the former Providence hospital, said spokesman Ed Boyle.

Within Snohomish County, regulators may look at the proposed affiliation in terms of its effect on competition for health-care business, since the two largest hospitals in the county are operated by Providence (in Everett) or Swedish (in Edmonds).

The Everett Clinic, headed by Rick Cooper, issued a statement in late 2011 noting that it will take a close look at the proposed Providence-Swedish alliance, which he said “has the potential to impact the Puget Sound health-care market. … We will fully participate in the regulatory review process.”

Within the region, many health-care organizations already attract Snohomish County patients, Boyle said, including Seattle’s Northwest Hospital and Medical Center, Kirkland’s Evergreen Hospital Medical Center and Bellevue’s Overlake Hospital Medical Center.

“That won’t change as a result of our proposed affiliation with Providence,” Boyle told The Herald late last year. “We believe Western Washington is highly competitive in terms of health-care providers.”

Smaller area hospitals, also facing competition in a tough market, seem to understand the situation well.

“No matter what size you are, you have to aggregate for economies of scale,” Mike Liepman, chief executive of Valley General Hospital in Monroe, told The Herald. His hospital is involved in a proposed joint venture with Capella Healthcare, a for-profit organization based in Tennessee. Earlier in 2011, Valley General explored a cooperation agreement with Providence but then ruled it out.

It’s not surprising that Providence and Swedish would make a pact to work together, The Everett Clinic’s Cooper said in a recent news article. He said the proposed partnership between Providence and Swedish is part of a national trend of consolidation among health-care organizations.

In some ways, the Puget Sound region has been slower to consolidate than many markets on the West Coast, such as Portland, San Diego and San Francisco, Cooper said.

“It’s not surprising that Providence and Swedish would make such move,” he said. “It’s an indication of the challenges and uncertainty in health care throughout the nation.”