Kaiser to Merge With Large Northwest HMO

Two pioneering health-care companies, Kaiser Permanente and Group Health Cooperative of Puget Sound, said Tuesday that they have agreed to a merger that would form the largest HMO in the Pacific Northwest, serving 1.1 million people.

The agreement, which follows more than six months of talks between the two nonprofit health maintenance organizations, is another sign of competitive pressures to slash medical costs.

Both companies said the merger will help them compete as nonprofit firms against for-profit insurance companies that have been making strong inroads in Washington and Oregon.

“This partnership is a bold step to ensure the success of nonprofit, consumer-focused care in the Northwest,” said Phil Nudelman, Group Health’s chief executive.

Seattle-based Group Health and Oakland-based Kaiser are two of the nation’s oldest and best-known HMOs. Each is about 50 years old, and both have been touted as innovative organizations that are models for the managed-care industry. Unlike most other HMOs, which use doctors who contract with several health plans, Group Health and Kaiser primarily use doctors who serve exclusively their members. They also own their own clinics and hospitals, unlike most other HMOs.

Group Health is also the nation’s largest consumer-governed health-care organization. About 10% of its members get to vote on policy issues. The merger with Kaiser was approved by 80% of the 13,500 members who voted.

The deal calls for Group Health and Kaiser to maintain their names, assets and separate operations. But a new nonprofit company, Kaiser/Group Health, would oversee the companies’ operations. The new company would have an 11-member board, with six members from Kaiser and five from Group Health.

Nudelman would be president and chairman of Kaiser/Group Health, reporting to Kaiser Chief Executive David Lawrence.

Group Health has 670,000 members in Washington and northern Idaho. Kaiser has 410,000 members in Oregon and southwest Washington who would fall under the new organization. They are among 8 million Kaiser members in 18 states.

The merger is subject to approval by various regulatory agencies.