Washington state: a laboratory for healthcare policy

Healthcare Financial Management, June, 2002 by Leo Greenawalt, Claudia Sanders

Visitors to Seattle can rest assured that if they need medical care, they are steps away from some of the finest hospitals in the nation. And, if they venture out to the wine country in Yakima, the Olympic Peninsula, and other more remote areas in Washington, they still can expect to have ready access to exemplary care. Washington has a total of 95 community hospitals, more than one-third of which are rural, and 41 of which are owned by local government public hospital districts.

Washington has a progressive history of providing care to its residents. Starting in 1858 with the founding of the first hospital in the Pacific Northwest by Mother Joseph of the Sisters of Providence, Washington has a long history of providing free health care to the needy In the late 1980s, Washington enacted its own fully state-supported program, Basic Health, to provide insurance to the low-income working poor.

Washington also was one of the first states to extend Medicaid benefits to low-income children. Washington increased coverage for children in families with incomes of up to 200 percent of the Federal poverty level years before enactment of the Children's Health Insurance Program, and, after enactment, the state increased its coverage to benefit children whose families had incomes of up to 250 percent of the poverty level. Funded by sin taxes and taxes on healthcare premiums and hospitals, these programs today provide care to more than 400,000 adults and children. As a result, in 2000, Washington had one of the lowest rates of uninsured in the nation.

Washington often is seen as a bellwether state that may indicate changes likely to occur in the rest of the country Unfortunately, though, in recent years, the direction of health care in Washington has become uncertain. The recent economic downturn and a growing crisis in the overall healthcare sector make it increasingly hard to see where this state may be headed, and whether it will continue to be able to provide the same quality of care in the future.

AN EFFICIENT HEALTHCARE SYSTEM

Historically, Washington has had one of the most efficient healthcare systems in the country Using a relatively small number of beds, Washington provides care with fewer hospital resources. Exhibit 1 shows how Washington rates as one of the best states on six standard measures of hospital efficiency.

Interestingly, the trends continue today. For example, with the tremendous upheaval that has taken place in California's healthcare markets in the past 10 years, hospital days per 1,000 in California have decreased an amazing 24 percent. Yet, in the same period, Washington has seen an even greater decrease of 31 percent. When local government and industry leaders have compared the cost performance of the Washington system with that of the advanced HMO markets in California, Minnesota, and Oregon, few feel compelled to advocate change. Businesses like Boeing and Microsoft keep their health plans rich in benefits and high in choice of providers as a major recruiting point to attract engineers and high-tech specialists who are in scarce supply.

Some have attributed Washington's performance to the healthy habits of the state's citizens, who spend a lot of time outdoors hiking, sailing, and climbing mountains. Although the true causes of the state's success are unknown, the training provided by the University of Washington medical school and the history of local physician-controlled county medical plans certainly are important factors.

Washington's healthcare leaders take pride in the state's record and most would like to see other states emulate Washington's approach. In the meantime, a common sentiment among Washington's leaders is that the state is penalized by Federal payment systems that do not reward its exemplary performance. With its overall record on efficient use of services, Washington has been a leader in the fight to change Medicare managed care payment policies to provide better payments to historically low-cost areas. But so far the state's efforts have met with little success.

STAGNATION IN GROWTH OF HMOS

In 1993, Washington enacted a sweeping healthcare reform law aimed at steering most of the population toward capitation for their health insurance coverage. In addition, West Coast neighbors California and Oregon were leading the nation in the movement toward tightly managed insurance products or outright capitation. As a result, leading economists were predicting that by the turn of the century, the majority of the Washington population would receive health care through integrated delivery systems that combined physicians, hospitals, and payers into a single organization. As it turns out, these predictions could not be further from reality.

Washington has seen a concentration of health plans in the market, but no growth in HMOs or managed care. Three health plan groups serve 70 percent of the healthcare market: Premera (a Blue Cross plan) has 25 percent of enrollees; Regence (a Blue Shield plan) has 28 percent; and Group Health, one of the oldest HMOs in the country, has 20 percent. Although Washington has had a few small plans in bankruptcy or near bankruptcy in the past several years, health plan finances in the state are beginning to show an overall improvement. Half of Washington's health plans lost money on their health insurance operations in 2000, but after applying gains on investments, most of them reported overall gains. Financial stability, though, has been achieved through tighter provider payments rather than through better integration of care.