By CAROL M. OSTROM
The Seattle Times
SEATTLE -- In coming years, patients in Washington state were going to see changes in health care -- with or without the federal Affordable Care Act, now the law of the land.
Long before the bitter debate over the federal law, most of which was upheld by the U.S. Supreme Court on Thursday, local health care leaders realized spiraling costs were putting health care out of reach for many businesses and individuals, as well as threatening the spending power of local governments. Health care costs now consume nearly a third of the state budget in Washington.
Insurance based on employment -- you could lose it if you're too sick to work -- and the fee-for-service system --paying doctors and hospitals for doing more stuff, even if it's the wrong stuff -- have created incentives that push in all the wrong directions, many say.
Determined to reverse course, hospital executives, clinic administrators and physician groups have been doggedly pursuing ways to lower costs by changing the incentives that drive the health care industry.
"We all agree, I think, that the current fee-for-service model has all the wrong incentives in it," said Swedish Medical Center CEO Kevin Brown. "The health care system has been really fragmented, with independent entities all working for their own best interests."
The work to curtail costs and improve quality has required an alliance of strange bedfellows: insurers, government officials and private providers, in the past often found on opposite sides of a negotiating table.
No one thinks it will be easy to wrestle the lumbering, fragmented and tradition-bound health care industry into a form that rewards quality and efficiency -- not quantity -- of care.
Group Health Cooperative CEO Scott Armstrong says it's important to remember the federal law was inspired by "the growing recognition our health care industry was on a path that could not be sustained."
These local leaders are buoyed by some early successes.
One collaboration between hospitals around the state and the Medicaid program -- which now pays for more than 50 percent of the births in Washington state -- sought to discourage early-term deliveries, including "convenience C-sections" or early inductions when there was no medical reason.
The goal, said Medicaid's medical director, Dr. Jeff Thompson, was not only to cut costs but to improve safety. Full-term babies are healthier and less likely to need expensive neonatal intensive care. In its first year, the project reduced early births by 65 percent statewide.
Other public-private collaborations, some convened by Gov. Chris Gregoire, focused on cutting unnecessary ER care and hospital re- admissions, often caused by a disconnect between hospital care and the regular, primary care a patient should -- but often doesn't -- get.
Insurers and providers have worked together, rejiggering the typical payment model to shift incentives toward keeping people healthy instead of just running up bills when they're sick.
One ongoing agreement between major insurer Premera Blue Cross and 13 local clinics and physician groups replaces straight fee-for- service reimbursement with a program to reward the clinics and their doctors for improving care.
Lloyd David, CEO of The Polyclinic in Seattle, where that project began in 2010, said it was the first "meaningful change" in payment methodology his clinic has seen since 1999. He hopes the project, which applies to The Polyclinic's 8,000 Premera patients, will eventually lead to a per-patient payment system.
Some other changes under way seem small -- Swedish asked cardiologists to agree on a single vendor for catheters and other hardware about four years ago. But Brown, the CEO, said there are "enormous savings" there, as well as benefits to patients.
"The more variability there is among surgeons, at the end of the day, the less good the outcomes are," agreed Dr. Jeff Westcott, an interventional cardiologist at Swedish.
Despite these successes, health care leaders are hardly sanguine about the task ahead.
At this point, to survive in the current market, medical centers have had to woo well-insured patients, building state-of-the-art facilities and promoting high-tech specialty care. But there's no high-tech solution to health care's fundamental problems.
"We know we have to improve access to care, and we know we have to dramatically reduce the cost of care," said Brown, of Swedish, which ended 2011 with a $991 million debt and in March was losing $250,000 a day.
The hospital made dramatic changes, including reducing staff by about 1,000 workers and affiliating with the much-larger Providence Health & Services, Brown said, not because of the federal law, but "because we know we have to deliver a different product to the marketplace."
As for doctors, most understand the current system is not sustainable, said Tom Curry, executive director of the Washington State Medical Association, which represents about 10,000 of the state's doctors. "We've got to redefine what is insurance, what is access to care, and redefine how we deliver it to provide value and quality."
Some say it's the private marketplace's last chance.
If the health care industry itself fails to solve the problem, said Rick Cooper, CEO of The Everett Clinic, costs ultimately will drive the country toward what he considers an unpalatable, government-run alternative.
"This might be one of the last opportunities for the marketplace - - providers and insurers -- to sort out solutions," Cooper said. "The next logical step, which many of us have not wanted to consider, is a single-payer system."
Not law's focus
The Affordable Care Act, which relies on private insurance, for the most part doesn't directly address costs.
At the same time, it seeks to alter the course of health care delivery, most notably by changing at least some of the dynamics that have contributed to financial and ethical troubles for U.S. society.
Instead of a system in which people can skip buying health insurance when they are healthy and insurers can refuse to cover them when they are sick, the federal law makes two important changes, beginning in 2014.
It requires everyone who can afford it to carry insurance or pay a penalty, and bars insurers from denying coverage to people with health conditions. For those who can't pay, the law expands Medicaid coverage and offers subsidies to help low- to moderate-income people afford commercial insurance.
More than a million Washingtonians are now uninsured, according to state insurance statistics. Many skip routine care they need, waiting until their condition worsens and they're forced to rely on hospital emergency rooms. That runs up costs that eventually get piled onto the premiums paid by those who are insured and by businesses, which increasingly say they can't afford to insure their workers.
In many ways, Washington state is ahead of others in benchmarks of cost-effective care: Per capita, the state has the second-lowest number of hospital beds in the nation, and the third-lowest number of inpatient days.
In the public realm, Washington has the nation's most vigorous program to assess new technologies, treatments and drugs, as well as programs to promote generic drugs and appropriate use of expensive high-end diagnostic imaging.
As a result of these and other programs, Washington Medicaid's cost increases over the past several years have been in the 2 percent to 3 percent range, compared with national trends of 7 to 8 percent or more, says Thompson.
But nobody believes that's enough.
Some say the federal law doesn't do much to control costs, although it makes a number of small but important tweaks, encouraging care improvements that may ultimately save money.
For example: It removes patient costs for many kinds of preventive and diagnostic care, such as mammograms and colon-cancer screening. It also allows a new type of payment arrangement in which clinics and doctors would be rewarded for helping keep patients healthy.
"This thing from the Supreme Court was just huge," said Westcott, the cardiologist. "It's exactly what we needed. We just need a model to shoot for."
Why didn't hospitals, doctors and other health care leaders work harder in the past to control costs, improve quality and shift incentives?
"We should have," said Westcott. "We wouldn't be in such a mess today if we'd done it." But the medical culture, he added, wasn't ready.
"In medicine, everybody has just done what they wanted to do."
Now, Westcott says, most see the writing on the wall.
A lot of writing.
Many look to models such as Group Health Cooperative and California-based Kaiser Permanente. As both insurer and provider, such HMOs have built-in incentives to keep care costs lower.
"We know that health care is going to transform over the next four or five years to much more of a managed-care type model where we're very, very accountable to costs," Westcott said. "All of our organizations are really trying to learn how to do this."
Now, the relentlessly bad economy is creating urgency.
Unemployment remains high, and many people have lost insurance. Some can't pay for the medications doctors prescribe.
A wave of baby boomers is about to hit overworked primary-care doctors, who worry about the younger generation, too.
Plagued with high rates of obesity and diabetes, today's young people are likely to be the first generation less healthy than their parents, says Curry, of the Medical Association.
Without changes, patients with chronic conditions and terminal illnesses will continue to get care that is expensive but not necessarily helpful.
"You know what's got to be done," Curry says, "but getting there isn't going to be easy."
Carol M. Ostrom: 206-464-2249 or email@example.com. On Twitter @costrom.