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Health Affairs Article Details Care Redesign at Seattle Medical Center

Virginia Mason's Quest to Improve Patient Care and Reduce Costs Without Being Awash in Red Ink

News Release
July 10, 2007

Alwyn Cassil (202) 264-3484 or

WASHINGTON, DC—The tale of one Seattle medical center’s quest to improve care and reduce costs illustrates the obstacles physicians face in practicing more efficiently under a fee-for-service payment system that overpays for some medical services and underpays for others, according to a study by researchers at the Center for Studying Health System Change (HSC) published today as a Web Exclusive in the journal Health Affairs.

The article, "Redesigning Care Delivery in Response to a High-Performance Network: The Virginia Mason Medical Center," takes an in-depth look at Virginia Mason’s efforts to improve care and lower costs for four common conditions: uncomplicated lower back pain; gastroesophageal reflux disease (GERD); migraine headaches; and cardiac arrhythmias.

Faced with exclusion of several physician specialties from Aetna’s high-performance network, Virginia Mason Medical Center (VMMC) officials worked with the insurer and four large Seattle employers—Costco, Starbucks, King County and Nordstrom—to redesign care delivery for the four conditions. Adapting aspects of the Toyota Production System to a health care setting, VMMC mapped out how to improve efficiency per episode of care for each of the conditions, according to the article.

"The good news is that Virginia Mason identified ways to streamline and improve care; the bad news is that the medical center’s bottom line may take a significant financial hit as a result," said Hoangmai H. Pham, M.D., M.P.H., an HSC senior health researcher and lead author of the study funded by the California HealthCare Foundation (CHCF).

In an accompanying HSC Issue Brief, "Distorted Payment System Undermines Business Case for Health Quality and Efficiency Gains," also funded by the CHCF, Paul Ginsburg, Ph.D., HSC president, points out that "most efforts to improve efficiency for a specific medical condition usually reduce the number of services per patient that can be billed, posing financial challenges for providers. These challenges are often magnified by the current fee-for-service payment structure, where some services are highly profitable and others are unprofitable."

Although Aetna and the participating self-insured employers agreed to pay higher rates for certain unprofitable services if VMMC could achieve reductions in highly profitable services, VMMC still faces a financial challenge from applying more efficient care practices to patients covered by other insurers, which account for more than 90 percent of VMMC’s revenues.

And most other medical groups would find it very challenging to do what VMMC did. "Their experience may be the best-case scenario," Pham said, "because they at least had a large group of salaried physicians to work with, who might not be as sensitive to the loss of revenues from profitable services as physicians in most practice settings, and who had the resources to define the problems and coordinate a plan of action."

The Health Affairs article concludes on a cautionary note, stating, "Aetna, employers, and [Virginia Mason] used an ostensible business case to motivate [Virginia Mason] to improve efficiency, only to confront the possibility of that business case turning on its head. It is an example of a provider organization attempting to do what purchasers, including the Medicare program, all exhort-improve
care delivery while reducing costs… It also stands as a cautionary example of how fee-for-service payment and uncoordinated payers present stubborn barriers to sustaining cost control."

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at

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Celebrating its tenth year, the California HealthCare Foundation (CHCF), based in Oakland, is an independent philanthropy committed to improving California’s health care delivery and financing systems. For more information, visit

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Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at

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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.