PeaceHealth St. Joseph expands as health care faces broader change

Large medical centers have slogged for years under inefficient, costly business models that health care experts say are no longer sustainable. So it follows that as American hospitals ready for a new world created through federal health care reform, cost-cutting measures are not just seen as means for improvement—many times, they are modes for survival.

At the PeaceHealth St. Joseph Medical Center in Bellingham, such shifts are underway on multiple fronts. Among the more visible changes are recent expansions that will put St. Joseph in a better position to leverage its skill and scale, according to leaders of the nonprofit, faith-based care provider.

A new integrated Cancer Center opened last December at the hospital’s main campus in Bellingham. Prior to that facility’s opening, St. Joseph announced a collaboration with a public hospital district in San Juan County to open a new 10-bed critical-access hospital in Friday Harbor.

The medical center is also hammering out details in a new affiliation with Public Hospital District 304 in Skagit County, which will have St. Joseph lease and operate United General Hospital in Sedro-Woolley beginning in July. The hospital will then be called the PeaceHealth United General Medical Center.

Below the surface at St. Joseph, practitioners prepare for a new era where they will be rewarded based on how effectively they treat patients, and not by the sheer amount of treatment they provide. This shift will take financial incentives for doctors out of the traditional “fee-for-service” care model.

“Today we’re in a business model that rewards volume, in the future we’ll be in a business model that rewards value,” said Nancy Steiger, CEO and chief mission officer of St. Joseph Medical Center. (Steiger also leads the PeaceHealth Northwest Network, which includes the hospital in Bellingham, the two new affiliates in San Juan and Skagit counties, as well as the Ketchikan Medical Center in Alaska.)

All of this happens as the entire PeaceHealth organization, which operates hospitals and care facilities in Washington, Oregon and Alaska, moves forward with a planned joint venture with Catholic Health Initiatives, a nationwide care provider based in Colorado. The partnership is on track to officially begin July 1, according to spokespeople from both organizations.

It will create an entirely new health care system, combining PeaceHealth’s facilities and operations with CHI hospitals and care facilities in Washington and Oregon. CHI is probably best known locally as the operator of the Franciscan Health System in Tacoma.

When the partnership was announced last August, PeaceHealth and CHI reported the new system, in which both organizations will be equal partners, will include about 26,000 employees and nearly 950 doctors. It is expected to generate annual revenue close to $4 billion.

Since last August, the Franciscan system has announced plans for new partnerships with Highland Medical Center in Burien and Harrison Medical Center in Bremerton, according to Michael Romano, a CHI spokesperson.

CHI and PeaceHealth continue to work out details of their coming partnership.

Romano said, in an emailed response to questions, that while considerable progress has been made, there is still work to be done. Both organizations are in the midst of a due diligence process that Romano described as “lengthy and complicated.”

It is still not known if the new system created through the partnership will be given a new name or what other changes might look like. But in terms of impact on patients, Romano said both organizations expect the July 1 transition to be seamless.

Jenny Ulum, a communications director with PeaceHealth, said forging a new system with CHI will likely be an ongoing process over the next several years.

Reconciling the two organizations’ missions and operating values is among the more complex components, Ulum said. Both PeaceHealth and CHI are Catholic-based institutions and in general share similar values. But each has its own set of policies, procedures and overall governing missions.

“It’s a lot of hard work,” Ulum said, about the process of creating the new system. “It’s the knitting together of two organizations.”

Steiger said she has received assurances that no changes will be made to the operating values and care directives of PeaceHealth St. Joseph in Bellingham.

Change, challenge, controversy

The consolidation and integration that come with such partnerships are integral to St. Joseph’s slowly evolving business model, Steiger said.

She said one of her major challenges as leader of the medical center, which virtually controls the hospital services market in Whatcom County and employs more than 2,700 people locally, is managing the immediate needs of the organization while at the same time preparing for the future.

While Steiger said the core strategy at St. Joseph remains in meeting the needs of its community, she knows that in the new age of health care, size will matter. With a larger population to serve, and with a larger integrated system capable of sharing resources and services, spending can be done much more efficiently, she said.

On another level, when doctors and hospitals are judged based on the overall health of the populations they serve, medical providers will need to acquire larger territory to make such systems work, she added.

“If the population you’re overseeing is too small, and you get adverse selection in patients, it could break the whole bank,” Steiger said.

Growth and expansion for St. Joseph has not come without controversy.

As large, regional medical centers look for partners, some advocates worry that when these combos involve alliances between public hospitals and privately run, faith-based providers, it could lead to restricted access to certain services including abortion and birth control, as well as certain end-of-life care options—namely Washington’s Death With Dignity Act, which allows doctors to prescribe lethal medication to terminally ill patients wishing to end their lives.

As a Catholic institution, PeaceHealth places restrictions on services that don’t line up with its religious values, including abortion, birth control and physician-prescribed lethal medication. The organization does not enforce blanket bans on these services. For example, doctors will permit abortions in cases when a mother’s life is in jeopardy.

The ACLU of Washington has raised concerns over St. Joseph’s expansions into San Juan and Skagit counties, saying in letters to public hospital districts in both locations that it has deep worries that state government might end up providing subsidies to a health organization that denies care based on its religious views. Such practices would violate the state’s constitution, ACLU leaders claim.

Some critics point to last year’s alliance between the Seattle-based nonprofit Swedish Health Services and the Catholic-based provider Providence as an example of the ACLU’s concerns. As part of the alliance, Swedish agreed to stop providing abortions, except in emergency situations.

Yet Steiger said St. Joseph’s affiliations in San Juan and Skagit counties will not lead to new restrictions on abortions or physician-prescribed lethal medication, since neither of its new partners provided these types of services to begin with.

She emphasized that PeaceHealth’s values direct physicians to treat patients’ pain and suffering, not to provide services that deliberately end life.

The right path?

Consolidation of health care providers, particularly partnerships between larger care systems and independent hospitals, is an industry-wide trend, said Larry Thompson, executive director of the Whatcom Alliance for Health Advancement, a Bellingham-based nonprofit that promotes community access to health care.

Change has been spurred by the Patient Protection and Affordable Care Act of 2010, also known as “Obamacare.” But Thompson said that in the health care world the need for new business models has been apparent for years.

Thompson said organizations that operate over large territories and with more facilities and practitioners are in better positions to handle cost cuts needed to keep their operations moving forward. But whether this move toward integration will make health care more financially sustainable, as well as more affordable for patients and providers, is an open question, he said.

The answer largely depends on how changes are implemented, Thompson said.

“I think the jury’s out on it,” Thompson said. “I think in theory it should lead to improved care, if executed well.”

At PeaceHealth St. Joseph, Nancy Steiger said a number of cost-cutting measures have already been implemented. In recent years, the organization has made efforts to streamline operations and remove wasteful or redundant services. Yet as health care costs remain high and the very nature of the industry changes, new strategies on a much broader level will be necessary, Steiger said.

Evan Marczynski, lead reporter for The Bellingham Business Journal, can be reached at 360-647-8805 or

Evan Marczynski Photos | The Bellingham Business Journal

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