Group Health Cooperative -- Part 2: Open for Business, 1946-1950

  • By Walt Crowley & The HistoryLink.org Staff
  • Posted 11/28/2005
  • HistoryLink.org Essay 7546

The health care visionaries who founded Group Health Cooperative in Seattle in 1945 were activists in the farmers' grange movement, the union movement, and the consumer cooperative movement. Their inspiration was Lebanese-American physician Dr. Michael Shadid (1882-1966), founder of the nation's first cooperatively owned and managed hospital (in Oklahoma). Dr. Shadid's crusade was to overthrow the traditional fee-for-service practice of medicine dominated by solo practitioners, expensive specialists, and private hospitals and clinics. Instead he advocated affordable, prepaid healthcare through the cooperative ownership of hospitals staffed by physicians -- practicing as a group -- who promoted the new idea of "preventive" medicine. Group Health Cooperative began providing health care after merging in 1946 with the Seattle-based Medical Security Clinic, a physician-owned group practice whose idealistic doctors also believed in preventive care. After years of struggle and despite virulent opposition by the medical establishment, Group Health became one of the nation's largest consumer-directed health-care organizations. This is Part 2 of a seven part history of Group Health Cooperative.

Open for Business

In 1945, World War II was finally over. As the founders of Group Health drew up plans for a membership of thousands, the Medical Security Clinic could look forward to a steep decline in its contract enrollment of 20,000, due to the postwar shrinkage of defense work. When Leslie Pendergast's doctors asked him if he was willing to sell the clinic to them, he could not have been happier. The purchase became official on September 27, 1945. On behalf of his fellow physicians, Dr. George Beeler took charge.

In their way, the Medical Security Clinic's staff members were no less idealistic than Group Health's founders. As clinic pediatrician William "Sandy" MacColl later explained, he and his colleagues hoped to create "a system of family care in which the interests of the patient and the physician were parallel and directed towards a goal of good care, health maintenance, and preventive services. They wanted the whole system to be supported by monthly payments of a group of people large enough to underwrite the cost of services desired."  

Clinic physicians were also committed to the principles of group practice in which doctors cooperate rather than compete in the care of their patients. In this model of care, the specialist focuses on his area of expertise and the generalist coordinates the overall treatment plan so that, as MacColl explained, "the patient gets the care he needs at the hands of the person best qualified to provide it."

 In the early months of 1946, the Medical Security Clinic had a downtown clinic and pharmacy, a Capitol Hill hospital, doctors, nurses, and other staff, but an evaporating case load as Boeing, Todd Shipyards, PACCAR, and other once-bustling defense contractors laid off thousands of workers. For its part, Group Health Cooperative had a growing membership but no means to serve them. Both organizations were replete with visionary idealists prepared to restructure the delivery of health care — but neither knew of the other's existence or needs.

The First Alliance 

That changed on the evening of March 14, 1946. Medical Security Clinic pediatrician Sandy MacColl and Group Health Cooperative lawyer Jack Cluck, who had never before met, took the stage with a representative of the King County Medical Society. The event was a Kirkland community forum to debate the proper future of health care.

MacColl and Cluck formed the instant camaraderie of two partisans meeting in the midst of battle against a common enemy, in this case, the medical establishment, for which group practice was almost as great an evil as "socialized medicine." Jack Cluck later recalled, "The audience jumped all over the King County Medical Society doctor. He was lucky to get out of there alive!" 

The two health-care visionaries hit it off and began talks over beers the same night. To them, a marriage of their two organizations was a natural, but the in-laws would take some persuading.

In early 1946, Group Health Cooperative of Puget Sound hired a director, John Nordmark, and two salesmen to peddle memberships. Volunteer Bill Jordan picked up the first membership cards from the printer and made himself Member No. 1. Although Group Health had no way to deliver services, a few hundred dedicated "cooperators" paid $75 each for "lifetime memberships."

The interim Board pursued its original idea of purchasing a new but now surplus federal hospital in Renton. When the government summarily rejected its rather unrealistic proffer of $125,000, Group Health encouraged a community group to pursue the hospital under a new state law for tax-supported public hospital districts. The hope was that the Cooperative might gain access to it later. At the same time, the Board quietly negotiated the acquisition of the Medical Security Clinic.

Consumer Democracy in Action

The Cooperative held its first formal Membership Meeting on September 4, 1946, in the County Commissioners' chambers in today's King County Courthouse in downtown Seattle. According to Ad Shoudy, the audience included a number of "habitual drunks that I knew" along with some disabled indigents attracted by rumors that Group Health would accept patients regardless of their medical condition. 

The members passed bylaws that would guide Group Health for years to come. The founding document included a commitment to quality care, preventive medicine, an aggressive outreach program, the consumers' cooperative plan, physician autonomy, workers' rights, health education, and public health advocacy. A few weeks later, members added a bylaw affirming the principle of nondiscrimination.

The members also approved new membership fees required to become a voting member of the Cooperative and medical dues that were actually rather expensive for the time ($100 membership fee, plus $3 per month dues for each adult family member and $1.50 for each of the first four children — no charge for additional children). Group Health was not designed as a solution to the problem of health care for the poor: Its dues structure limited membership mainly to skilled workers and middle-class professionals.

Finally, Jack Cluck rose to describe the draft purchase contract for the Medical Security Clinic. As it turned out, his presentation was not news; word of his negotiations had leaked out. According to Shoudy, a woman stood up to denounce the deal, saying she'd been corresponding with Dr. Michael Shadid and that he viewed Medical Security Clinic director Dr. Beeler as "a big bag of wind."

Despite this ambush, the members at this founding meeting endorsed acquisition of the Medical Security Clinic, its hospital, downtown clinic, four satellite clinics, staff and doctors, and more than 10,000 contract enrollees for $190,000, and authorized the new Board of Trustees to work out the final details. Then County Courthouse janitors, ready to go home for the night, evicted the participants before they could elect a permanent Board. The opposition now had a month to ferment and to promote a slate of trustees standing against the deal.

Dr. Shadid sent a long letter in opposition, which promptly became the ammunition for a membership caucus calling itself "The Committee," organized to oppose the purchase of the Medical Security Clinic. Shadid objected both to the cost and to the proposed organization, which would allow the medical staff to retain elements of autonomy and control of its own affairs. He warned that Medical Security Clinic doctors would control the Cooperative instead of vice versa. The Committee sent a copy of the letter to the entire membership and Group Health members swamped the acting Board of Trustees with calls and letters.

Both sides rallied forces for the next membership meeting, held on October 17 at the Broadway High School auditorium (now part of Seattle Central Community College) on Capitol Hill. Many acquisition opponents were members of the Reverend Fred Shorter's leftwing Church of the People in the University District. In the words of one opponent, they feared that the purchase would establish a mongrel organizational form, "a hodge-podge of dubious capitalism and adulterated consumer's cooperation."

Backing the founding Board of Trustees were the original founding organizations: the Grange, the International Association of Machinists (IAM Lodge 751), and leaders of local consumer and producer cooperatives. This bloc was convinced that acquiring the Medical Security Clinic was Group Health's last and only shot at launching a functional medical cooperative.

The minutes report that a "very warm discussion" followed, with several votes taken. Ultimately, the acting Board won, but again time ran out before it could be formally elected. The final round occurred on October 24, 1946. The issues were thoroughly rehashed, and in the end the pro-acquisition bloc was elected as Group Health's first permanent Board of Trustees.

A New Health-Care System

The new Group Health Cooperative was a two-sided organization in which each side joined with the other for mutual benefit, but retained elements of autonomy. On one side was the membership, represented by the Board of Trustees, and on the other side were the doctors and medical staff. The Board elected as first president of the cooperative Thomas G. Bevan, whose roots were in Boeing's aeromechanics union. Dr. George Beeler, formerly of the Medical Security Clinic, served as the Cooperative’s first executive director and Dr. John O. McNeel became its first chief of staff.  

The Medical Clinic began accepting Group Health members on November 15, 1946. Before the day was out, Trygve Erickson was born. He is generally regarded Group Health’s first baby, although Group Health did not formally take over the clinic and hospital until the New Year. Starting on that date, the first official birth at Group Health was that of Roger Paulson on January 13, 1947.

Bob Mitchell took over marketing with the ambitious goal of recruiting 800 members in a year. But sadly, in May 1947, a heart attack struck him down. He would never know that Group Health exceeded his target with 1,024 members by year's end, plus an additional 8,500 group enrollees chiefly inherited from the Medical Security Clinic. (Note that records are inconsistent in counting Co-op voting members and non-member enrollees in health-care plans. This account attempts to track each to the extent possible.)

The members launched a drive to sell $100 “Pioneer Bonds” to raise $100,000 to pay off the Medical Security Clinic purchase. Members also voted to restructure fees and to limit membership to persons under 65 years old in order to control a quickly mounting deficit as costs of serving members and contract enrollees exceeded revenue from their dues and fees. (In 1957 the Board lowered the age further still, to 60.)

The Cooperative’s financial problems led its original Medical Security Clinic staff to renegotiate the purchase agreement and cut the balance due by $80,000. It also took one-fourth of the payment in Pioneer Bonds. Dr. Beeler retired as executive director and Don Northrop, a hospital administrator, succeeded him. The debt was cleared by November 1948, at which time Addison Shoudy took his leave to promote development of new cooperatives.

In the spring of 1948, thousands of aeromechanics struck the Boeing Airplane Company. The Cooperative, despite its financial strains, stood in solidarity with IAM Lodge 751 and in May, the Board voted to allow striking Boeing machinists to receive services and to postpone dues payments for the duration of the strike, which lasted until September. This sacrifice honored Group Health’s labor roots but did not endear the Cooperative to company executives. Relations between Boeing and Group Health would remain cool for 20 years to come.

Nevertheless, 1948 was a good year for Group Health. The Co-op established a satellite clinic in Renton, where voters had created a Public Hospital District but not yet won control of the federal hospital. Membership nearly tripled to 2,811, while contract enrollment slipped below 8,000. The Board approved expansion of St. Luke’s to add 30 hospital beds.

In August 1948, cooperative movement pioneer and former California Congressman Jerry Voorhis, who had lost his seat to Richard Nixon two years earlier, spoke in Seattle. He called Group Health Cooperative "the most hopeful sign in the whole country for the solution of the health care problem in this country." But not everyone was cheering. 

Beating the Establishment

The American Medical Association and its affiliates held life-and-death power over organizations like Group Health through accreditation of their facilities and certification of their physicians for practice, referrals, hospital privileges, and insurance. Although in 1948 the national AMA accredited St. Luke’s and drafted 20 criteria for accreditation of prepaid health programs such as Group Health, the King County Medical Society (KCMS) refused to admit as members the Co-op’s doctors, including Chief of Staff John McNeel.  

King County Medical Society also instructed its members to deny assistance to Group Health doctors and their patients, and this directly threatened their health. In the winter of 1949, for example, Renton Hospital refused to admit a 15-year-old Group Health patient with pneumonia unless he accepted a new doctor. His father refused and instead drove his son through ice and snow to the Group Health hospital on Capitol Hill.

Only a few medical mavericks aided Group Health, notably Virginia Mason Clinic physicians, who allied with the Cooperative in 1947. Group Health also found an influential supporter in Dr. Edwin Turner, the first dean of the University of Washington Medical and Dental School, which opened in 1946 after decades of opposition and delaying tactics by the state and local medical establishment. 

The Medical Society's campaign against Group Health was aggressive. According to the Grange News, the society circulated a letter to Renton physicians asking for donations to buy the federal hospital and "thereby prevent acquisition by a 'socialist' group.'" In March 1947, the Medical Society's own Bulletin, in its first printed acknowledgment of Group Health's existence, complained about "an undesirable contract group working in south King County."  

King County Medical Society castigated Group Health physicians as "unethical,” which meant, according to KCMS "ethics," that they were working for a prepaid group practice that the Medical Society had not certified. A neat Catch 22. More insidiously, Group Health’s enemies dubbed it “Group Death” and labeled its staff and members “Communists.”

Without accreditation, Group Health physicians found themselves unable to buy malpractice insurance anywhere in the United States (they finally secured coverage through Lloyd's of London). The Medical Society's opposition also made it nearly impossible to recruit competent physicians. By 1949, the total medical staff had increased by exactly one, whereas enrollment had soared to 16,000. One doctor remembered, "Because we felt at the time that we could not afford to practice poor medicine, I must say we were under a great deal of emotional strain.” 

Former medical director Dr. Beeler attempted to negotiate a truce, but his efforts proved fruitless. Finally, the Group Health Board gave Jack Cluck permission to file suit. He did so on November 25, 1949.  

Federal courts had already punished AMA units for interfering with other medical co-ops, but Group Health's case did not come under federal jurisdiction. Instead, Cluck accused the King County Medical Society of violating the State Constitution’s populist-era ban on monopolies and price-fixing. When the King County Superior Court dismissed the case in July 1950, Cluck appealed to the State Supreme Court, which heard arguments nearly a year later. 

Guardedly optimistic as they were, Jack Cluck and Group Health leaders, staff, and members were unprepared on November 17, 1951, for the clarity and vehemence of the Court’s unanimous ruling. It condemned the “long and vigorous struggle of the King County Medical Society to curb independent medical and hospital services in King County,” which it had “waged chiefly against Group Health Cooperative of Puget Sound.” The Court ordered the Society to mend its ways and put it on probation for three years to ensure that it did.

To celebrate, some Group Health physicians found an open liquor store and, as one remembered, “tried to drain the place.” He added, “We did have enough sense to take a cab and go home. It was back to work as usual the next day.”

End of Part 2. To reach Part 3, click "Browse to Next Essay" below.


Sources: Walt Crowley, To Serve the Greatest Number: A History of Group Health Cooperative of Seattle (Seattle: GHC/University of Washington Press, 1995); John Phillip Holden, Group Health Cooperative of Puget Sound: An Institutional Study of a Unique Medical Service Organization (M.A. thesis, University of Washington, 1951); William A. MacColl, M.D., Group Practice and Prepayment of Medical Care (Washington, D.C.: Public Affairs Press, 1966); Walt Crowley & The HistoryLink.org Staff, Group Health Timeline (Seattle: Group Health Cooperative/History Ink, 2007).

Related Topics:   Group Health | Health

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