Intermountain Health Care, Inc.

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Intermountain Health Care, Inc.

36 South State Street
Salt Lake City, Utah 84111
U.S.A.
(801) 442-2000
Fax: (801) 442-3565
Web site: http://www.ihc.com

Private Company
Incorporated: 1975
Employees: 22,000
Sales: 2,008.7 million (1997)
SICs: 8062 General Medical & Surgical Hospitals; 8063 Psychiatric Hospitals; 8069 Specialty Hospitals Except Psychiatric; 8011 Offices & Clinics of Medical Doctors

Intermountain Health Care, Inc. (IHC) is the largest hospital chain and health care organization in the Intermountain West. With 23 hospitals, it serves more than 425,000 individuals in Utah (its main market), Idaho, and Wyoming. It is a vertically integrated company with not only hospitals, but also 75 clinics plus health insurance plans for individuals, families, companies, and institutions. More than 2,500 medical doctors are affiliated with IHC, including 400 directly employed by the firm. It has pioneered innovative management methods for the nonprofit health care industry, resulting in cost-effective quality care, and its executives have served in numerous leadership roles in that field. IHC also has faced major legal and public relations problems concerning taxation and antitrust, issues that have received considerable attention by the media and public policy experts.

1970s Origins: The LDS Church Hospital System

IHC grew out of the hospital system of The Church of Jesus Christ of Latter-day Saints (the “Mormons”). Although the Episcopalians built St. Mark’s Hospital, Utah’s first permanent hospital, in 1872, the LDS church by the early 1900s had built its two main facilities: the LDS Hospital and the Primary Children’s Hospital, both in Salt Lake City.

After World War II, the church acquired other facilities, including some, like Provo’s Utah Valley Hospital, which had originated as community hospitals. In 1970 the church integrated its health care system by forming the LDS Health Services Corporation. In the early 1970s that nonprofit corporation operated 15 hospitals with more than 2,000 beds, one of the nation’s largest hospital chains.

In 1974, however, the church surprised many by announcing that it would quit the hospital business, “because the operation of hospitals is not central to the mission of the Church.” Reasons for that change included 1) a booming worldwide missionary effort that required more church resources, 2) old hospitals that needed about $100 million to upgrade, and 3) concern over more federal laws and regulations on medicine, including the 1973 U.S. Supreme Court decision (Roe v. Wade) that legalized abortion.

So in 1975 the church gave its hospitals to a new nonprofit entity called Intermountain Health Care. Its founding chairman, William N. Jones, a prominent businessman, headed an interdenominational board of trustees. IHC chose Scott Parker as its first president, a Salt Lake City native who had graduated with his master’s degree in hospital administration from the University of Minnesota and then gained much experience as a hospital administrator in Minnesota, Arizona, and California.

IHC started with the following 15 hospitals: LDS Hospital, Salt Lake City (largest in the chain); Primary Children’s Hospital, Salt Lake City; Utah Valley Hospital, Provo, Utah; Bear River Valley Hospital, Tremonton, Utah (managed); Cassia Memorial Hospital, Burley, Idaho (managed); Cottonwood Hospital, Murray, Utah; Fillmore Hospital, Fillmore, Utah; Fremont General Hospital, St. Anthony, Idaho (managed); Garfield Memorial Hospital, Panguitch, Utah; Logan Hospital, Logan, Utah; Idaho Falls Hospital, Idaho Falls, Idaho; McKay-Dee Hospital, Ogden, Utah; Sanpete Valley Hospital, Mt. Pleasant, Utah; Sevier Valley Hospital, Richfield, Utah; and Star Valley Hospital, Afton, Wyoming. IHC thus followed the trend started in the 1960s for hospitals to cooperate to save money and compete more effectively. In 1968 Hospital Corporation of America became the first for-profit chain. By 1986 about one-third of the United States’ acute-care hospitals were affiliated with a multihospital organization.

Early Expansion and Improvements

In its first few years IHC emphasized refurbishing its original hospitals, adding some new facilities, and generally improving hospital operations. It purchased three hospitals in Utah (St. George, Cedar City, and Orem), two in Evanston, Wyoming, and one in Pocatello, Idaho.

IHC also expanded centralized services to its growing chain of facilities. In cooperation with other nonprofit hospitals, IHC formed the Associated Hospital System (AHS) in 1978 to save money on joint purchases. AHS merged with the United Hospital System in 1984 to form the American Hospital Systems, again to take advantage of economy-of-scale purchasing power.

Scott Parker and his management team took advantage of the centralized budgeting started by the LDS hospital system. In IHC’s 1995 corporate history, Parker said, “Other hospital systems hadn’t done it [consolidated their finances]. [The LDS Church] bit the bullet and said, ’The money is going to come centrally and we’re going to bank it, invest it and control it centrally.’ That’s a big, big problem to get over. Some systems that have prominence and reputations across the country still haven’t done it.” IHC began a cost-saving program to save on insurance and risk management. In 1976 it teamed up with hospitals in other states to create Multihospital Mutual Insurance, Ltd. to provide liability coverage.

In these early years, IHC saved some small rural hospitals, such as Valley View, which in 1977 regained it accreditation. IHC’s total revenues grew from $92 million in 1975 to $223 million in 1980, a ten percent real growth rate after adjusting for inflation. Its “ambitious program of building, renovating, and managing was being accomplished without significantly raising the cost of care,” according to its corporate history.

Diversification and Restructuring in the 1980s

While continuing to add more hospitals and horizontally integrate its chain under centralized leadership, IHC in the early 1980s constructed or purchased several facilities for ambulatory patients who did not need hospitalization. Included were surgical centers for elective surgery, InstaCare Centers or clinics near residential areas, and occupational health centers, like the one built to serve the workers of Intermountain Power Plant near Delta, Utah. In 1986 more than 100,000 patient visits were recorded at these various smaller IHC facilities.

In 1983 IHC created its Home Health Agency to provide nursing care, physical therapy, medical social work, intravenous therapy, and other services to patients at home. Such new and diverse programs led IHC in 1983 to reorganize as a parent company with five subsidiaries. IHC Hospitals, Inc. managed the firm’s hospitals in Utah, Wyoming, and Idaho. IHC Professional Services, Inc. ran surgical centers and WORKMED occupational clinics, and IHC Foundation, Inc. raised funds and administered grants to help rural hospitals. The fourth subsidiary, IHC Health Plans, Inc., included a preferred provider organization called Health Choice and three health maintenance organizations: IHC Care, IHC Care-Group, and the Utah Small Employer Health Plan. IHC Affiliated Services, the fifth subsidiary, was a for-profit operation with group purchasing programs and computer software sold to other hospitals.

Sociologist Dr. Paul Starr called such a corporate restructuring a form of vertical integration, defined as a “shift from single-level-of-care organizations, such as acute-care hospitals, to organizations that embrace the various phases and levels of care, such as HMOs.” IHC owned primary care facilities, such as clinics and small hospitals, secondary care hospitals with the ability to handle routine operations and diagnostic tests, and tertiary care hospitals with quite advanced capabilities.

Integration and Consolidation in the 1980s and 1990s

IHC eventually realized that it had overexpanded geographically by comanaging some clinics far from Salt Lake City. To save travel costs and focus on its core markets in the Intermountain West, IHC finally abandoned surgical centers in New Jersey and California and an Ohio occupational health center. Although IHC computer software had been sold to more than 200 hospitals nationwide, the company sold that business in 1988 to focus on its main goals.

Company Perspectives:

The mission of Intermountain Health Care’s nonprofit hospitals and clinics is to provide quality care to those with a medical need, regardless of ability to pay. Excellent service to our patients, health plan members, customers, and physicians is our most important consideration. We will provide our services with integrity. Our actions will enhance our reputation and reflect the trust placed in us by those we serve. Our employees are our most important resource. We will attract exceptional individuals at all levels of the organization and provide fair compensation and opportunities for personal and professional growth. We will recognize and reward employees who achieve excellence in their work. We are committed to serving diverse needs of the young and old, the rich and poor, and those living in urban and rural communities. We will reflect the caring and noble nature of our mission in all that we do. Our services must be high quality, cost-effective, and accessible, achieving a balance between community needs and available resources. It is our intent to be a model health care system. We will strive to be a national leader in nonprofit health care delivery. We will maintain the financial strength necessary to fulfill our mission.

In the late 1980s, as most hospital bed occupancy rates had fallen to about 50 percent, IHC was forced to find other ways to become more efficient and consolidate its operations. Thus in 1989 the company eliminated 20 management positions, a fairly typical move in the Information Age when middle management was becoming increasingly irrelevant.

Meanwhile, IHC faced other major problems in the 1980s. Its doctors faced higher malpractice insurance premiums, a nationwide trend. In the 1982 case Hunter v. IHC, the jury decided that the Hunter family should be awarded $4.7 million because of malpractice at IHC’s Utah Valley Hospital. The largest malpractice lawsuit in Utah at the time, that one case probably helped raise liability rates for all Utah doctors.

IHC’s toughest long-term legal and public relations challenge arose when some county governments decided that IHC hospitals should pay property tax because of the increasing business orientation of all health care operations, whether for-profit or nonprofit. IHC argued that its hospitals were charitable institutions and thus should be tax-exempt, based on the Utah Constitution that stated tax exemption could be granted to only charitable, religious, or educational organizations. In 1985 the Utah Supreme Court ruled in Utah County v. Intermountain Health Care, Inc. that two IHC hospitals were not automatically considered charitable and thus might be subject to taxation. In the fall 1986 election, Utah voters defeated Proposition One, which would have amended the state constitution to “allow property owned by a nonprofit entity that is used exclusively for hospital or nursing home purposes to be exempt from property tax.”

In spite of the court ruling and the defeat of Proposition One, IHC hospitals have not paid taxes because they were able to prove on an individual basis that they qualified under state rules as charitable institutions. Some people complained because IHC input was used to write new rules concerning what exactly qualified as a charitable unit.

The bottom line was that IHC survived this challenge and continued into the 1990s as a legally charitable organization, based on its numerous gifts to the community. Those included free care to those who could not pay for aid, plus numerous grants from IHC foundations to support a wide variety of community-based organizations. In 1997, for example, IHC helped fund 114 programs, such as those for the American Cancer Society, the Salvation Army, the Utah Hispanic-American Festival, and the Salt Lake County Aging Services. After 20 years of operations, IHC by 1995 had provided more than $130 million in charitable care for patients. The company’s total benefit in the form of community education, free health screening, and medical training came to $1 billion.

IHC worked hard to integrate its physicians into the corporate structure and culture, a difficult task considering that doctors traditionally valued autonomy and professionalism under their own direction. IHC created the Great Basin Physician Corporation. Three officers of that corporation also sat on the IHC Board of Trustees as a way of giving MDs more say on overall IHC policy.

IHC used advanced technologies to help integrate its services. For example, its laboratory leaders in the late 1980s began a coordinated program that eventually networked IHC hospital labs together. Automated inventory and medical records programs followed suit. In 1986 the company installed its satellite network, which was used mainly for continuous medical education programs, seminars, and teleconferences.

In the late 1980s IHC also began implementing the ideas of W. Edwards Deming to promote continuous quality improvement (CQI) in all phases of its work. Using statistics, empowering employees, reducing waste, and improving communication were a few of the basic concepts used here. National and international recognition of these innovative programs soon came. For example, in 1991 IHC received the Healthcare Forum/Witt Award for Commitment to Quality, similar to the Malcolm Baldridge National Quality Award.

In the 1990s IHC extended its integration strategy by pushing for systems and clinical integration. For example, it emphasized a wide range of health care operations, from short-term acute emergencies and surgery to long-care strategies based on prevention. In 1997 it began serving healthy children by creating the state’s first Family Health Center at Salt Lake City’s Lincoln Elementary School, a pilot program in a medically underserved neighborhood where many Hispanics and other minorities lived. In cooperation with other organizations, IHC supported health fairs, health education classes, and various other support groups as part of the national Healthy Communities program. For businesses, it provided through its IHC Health Plans free onsite screenings for employees with risk factors such as high blood pressure. IHC also backed programs for atrisk women to prevent premature births and to help individuals quit smoking. In addition to its hospital-based surgeries and advanced diagnostics, IHC provided home-based health care for temporary or long-term patients. IHC called this holistic approach clinical integration, which included families, neighborhoods, communities, businesses, and other providers in a long-range plan to help individuals in their quest for optimal physical and mental health.

Facing reform efforts by the Clinton administration and state government, IHC in the 1990s stressed the cooperation and synergy created when hospitals, health plans, and doctors worked together. Its subsidiary IHC Health Plans offered several kinds of health insurance, from managed care HMOs to plans that gave patients more freedom to choose their doctors.

By the 1990s IHC faced three major competitors in its main Utah market, the urban Wasatch Front from Provo in the south to Brigham City north of Salt Lake City. First, Columbia/HCA Healthcare Corporation, a for-profit chain based in Nashville, owned St. Mark’s Hospital, other Wasatch Front hospitals, and several clinics. The University of Utah HealthNetwork included the University of Utah Medical Center and several clinics. Third, Paracelsus Healthcare Corporation ran the Salt Lake Regional Medical Center, formerly known as Holy Cross Hospital, along with three smaller hospitals and some clinics.

Because of IHC’s dominance in its main market, it sometimes was accused of creating a health care monopoly and violating federal antitrust laws. For example, when it built the new Primary Children’s Medical Center next to the University of Utah Medical Center, the federal government investigated antitrust charges that ultimately were dropped.

Developments in 1997 and 1998

After many years as Utah’s main blood bank, in 1997 IHC ended that activity after having difficulty meeting the increasingly demanding requirements of the Food and Drug Administration. The American Red Cross took over the region’s blood banking after IHC’s departure.

Also in 1997, IHC received the following awards or honors. A National Research Corporation survey found that IHC was the top-rated HMO in the Salt Lake City area. After examining 500 U.S. firms, the magazine PC Week rated IHC as Utah’s number one company in the use of computers and information technology. In addition, IHC received the Smithsonian Computerworld Award for its use of the Internet in quality care tracking systems. The American Hospital Association’s Hospitals and Health Networks magazine, after studying more than 630 systems, named IHC one of the nation’s top eight integrated health care systems.

At the end of 1998 Scott Parker retired after 23 years as IHC’s first and only president/CEO. He had served as the chairman of the American Hospital Association, president of the International Hospital Federation, chairman of the Hospital Research and Development Institute, and as a director of several major corporations.

Parker’s replacement, William H. Nelson, took over the nation’s seventh largest nonprofit hospital chain. Nelson had earned an MBA in 1971 from the University of Southern California and worked as a healthcare consultant for the accounting firm later known as Ernst and Young before joining IHC in 1976. As part of IHC’s senior management team for many years, Nelson was well positioned to take over the reins of the growing firm.

In 1998 IHC’s chairman was David Salisbury, an attorney who had joined the Salt Lake City law firm of Van Cott, Bagley, Cornwall and McCarthy in 1952 after graduating from the Stanford Law School. His law career included work in taxation and estate planning and clients such as Mountain States Telephone and Telegraph Company.

Like all health care organizations, IHC confronted recent trends such as increased consumer awareness, questioning of professional roles, and the rise of holistic or alternative medicine. In reality, IHC and other hospitals generally arose during the Industrial Revolution, along with other centralized entities like factories and libraries. But with the advent of computers and advanced telecommunications, decentralization became the dominant trend. Almost all hospitals since the 1980s had about a 50 percent occupancy rate. That basic fact propelled IHC to search for new ways to serve the community.

In 1998 IHC seemed to be doing a good job of adapting to what many have called a health care revolution, in part by balancing what author John Naisbett in Megatrends called high-tech and high-touch approaches. Significantly, IHC’s costs ranged about 30 percent lower than the national average, a rather remarkable achievement.

Two 1998 developments seemed typical of IHC’s history. On a positive note, officials from IHC, the University of Utah, and the Huntsman Cancer Institute announced a joint program to develop standardized cancer therapies. According to the December 19, 1998 Salt Lake Tribune, this cooperative effort was “the first time in the United States such a venture has been initiated in a population within a single geographical area. Similar programs involve medical institutions and patient populations located far from each other.” Such clinical innovation was part of IHC’s legacy.

The company, however, faced yet another in a series of public relations/legal difficulties. Shortly after receiving the bid to become the health care provider for the Salt Lake Winter Olympics in 2002 A.D., the public learned that IHC had provided nearly $28,000 worth of free care for three Africans associated with the International Olympic Committee before the IOC awarded the games to Salt Lake City. An IHC spokesman said the company had responded as part of a community effort to win the games and that IHC had been told the three individuals lacked adequate funds or that the requested services were unavailable in their home nations. These developments were part of an ongoing bribery and ethics investigation concerning not only IHC and Salt Lake City Olympics leaders, but the Olympic Games in general. As the new millennium approached, IHC President Nelson and Chairman Salisbury faced such controversies along with their main task of keeping costs down while providing quality care.