Bill to privatize public hospitals draws fire

A bill to privatize public hospitals, including Maui Memorial Medical Center, came under fire last week from public union leaders and members, and two state House committees recommended establishing a nine-member task force to study the proposal’s feasibility.

During a hearing at the state Capitol on Wednesday, members of the House Health and Labor & Public Employment committees received written testimony from more than 135 testifiers, with 26 in support of House Bill 1483 and 110 opposed.

The bill seeks lawmakers’ approval of a measure to pave the way for turning management of Neighbor Island hospitals from the state’s Hawaii Health Systems Corp. to a private nonprofit. The bill doesn’t name Banner Health, one of the country’s largest nonprofit hospital systems, but the Hawaii Health Systems Maui Regional System Board of Directors has been in discussions with Banner since at least summer of last year.

Banner officials traveled then to Maui to visit the island’s medical facilities, and a half-dozen Maui system board members later flew to Banner’s headquarters in Phoenix and toured facilities in Arizona, Colorado and Alaska.

The HHSC’s courtship of Banner comes as the state struggles to pay the rising costs of hospitals on the Neighbor Islands. Challenges include capital shortfalls, budgetary restrictions, declining government and third-party subsidies, a lack of scale that affects hospital operations and an inability to keep pace with the requirements of health care reform.

The bill’s hearing at the state Capitol last week drew a sharp response from public union leaders and hospital employees, including nurses, clerks and hospital technicians.

Randy Perreira, executive director of the Hawaii Government Employees Association and president of the Hawaii State AFL-CIO, expressed deep concern that the Legislature was considering privatizing public health facilities.

“Corporations are in business for one reason and one reason only – to make money and more money each and every year,” he said in written testimony. “Profits are above everything else. This means profits above employees, profits above customers and profits above the community. Current and future employees would be put in jeopardy and services the community and customers rely on may vanish.”

Perreira said public hospitals on the Neighbor Island provide a safety net of health care.

“To preserve the safety net for the Neighbor Islands, the system must remain intact,” he said. “If one or more regions were to withdraw from the system, it will create instability through the whole system, both financially and in the types of and mix of services available to local communities.”

He maintained that “the effort to divest our state’s involvement in our health care and put that responsibility on an Arizona-based provider is short-sighted and not in the best interests of our communities.”

Wesley Lo, chief executive officer of the HHSC’s Maui Region, told lawmakers that a public-private partnership would enable Maui Memorial and other public hospitals to expand services and infrastructure and “enable us to provide our communities with access to the quality health care that they deserve.”

“Under current conditions, HHSC continues to face financial challenges including increasing operating and capital improvement costs, budget shortfalls, budgetary restrictions, declining government and third-party payer subsidies and lack of scale,” he testified. “These issues are related to declining reimbursements, medical inflation, the Affordable Care Act and the current ‘fiscal cliff’ and federal sequestration. . . . We need to find a solution.

“Over the last several years, general fund subsidies and reimbursements continue to decline while operating costs continue to climb, resulting in exponential net losses for HHSC facilities,” he said.

Lo reported that in 2012, HHSC’s operating loss totaled more than $143 million, while state subsidies decreased to $73 million, resulting in nearly $70 million in net losses, a 134.4 percent increase in net losses from 2011. Looking ahead, HHSC anticipates a $58.5 million shortfall for the fiscal 2014-15 biennium budget, he said.

Also, HHSC lacks capital to make necessary capital improvements, Lo said, adding that under its strategic plan HHSC would need approximately $950 million to take care of aging facilities.

“Some HHSC facilities are in need of major renovations and in a few cases need to be replaced,” he said. “Declining subsidies and deteriorating infrastructure will inevitably affect quality of care.”

In written testimony, Maui Memorial registered nurse Barbara Larrabee Duarte joined dozens of other hospital employees from Maui and the Big Island in strongly opposing the measure.

“As a government employee, I dedicate my career to public service,” she said. “Banner Health is a national nonprofit hospital system that only wants private employees. If they take over, they will most likely terminate all employees in Maui Memorial Medical Center and rehire only those who pass pre-employment requirements. Banner Health does not believe in unions, and my civil servant status and benefits will be lost as I will no longer be a state employee.”

Duarte predicted that Banner would cut services it “deems unfeasible to maintain or lack clinical quality” and possibly close facilities that the community depends on.

Ronald Bunnell, executive vice president of Banner Health, submitted written testimony supporting the measure before lawmakers, saying it “provides a clear legal framework for HHSC and its regions to negotiate a lease agreement with private health care organizations to assume operation of HHSC facilities as privatized organizations.”

Banner, a nonprofit corporation, has been invited by Maui and Big Island regions of the HHSC to enter into such an arrangement, he said.

“We cannot emphasize too strongly that this legislation would be needed for any privatization transaction to occur, whether with Banner Health or with another private health care organization,” he said. “We share the concern of many that the HHSC system is unsustainable over the longer term and, unless fundamental systemic changes are made, it will increasingly struggle to deliver the health care services needed on the Neighbor Islands and will fall further behind the dramatic changes taking hold elsewhere in the U.S. health care system.”

Banner’s vision for Hawaii facilities “would begin with excellent patient care,” he said.

“The ability to improve patient care is directly tied to the ability to invest significant resources and implement enterprise-wide systems that support the clinical decision-making of clinicians,” Bunnell said.

Banner Health operates 23 owned and leased hospitals in seven states – Alaska, Arizona, California, Colorado, Nebraska, Nevada and Wyoming. It had approximately $4.9 billion in annual revenue in 2012 and employs 31,000 people. It has been named one of the top 15 health care systems by Thomson Reuters.

The committees’ report noted that “it is evident from the extensive testimony received and the hearing discussion that there are still many unknowns in the proposed partnership and transition to nonpublic status.

“Much work still must be done to gain understanding and support for such an agreement from the regional hospitals and the communities that are serviced by these hospitals, including the general population, as well as physicians, nurses, hospital employees, support staff and others,” the report said. “Understanding and trust must be fostered with the exclusive representatives of the hospital personnel to ensure a smooth transition to nonpublic status, should such a transition occur.”

Lo, the Maui region CEO for the HHSC, said he was concerned about the committee’s recommendation to study the issue.

“My concern about a task force is that we cannot guarantee that an option such as Banner will be around indefinitely,” he said in an email. “While the Legislature ‘studies’ the situation, the opportunity for this partnership may evaporate.”

If the bill doesn’t pass, Lo said, he sees three scenarios for the HHSC:

* Ask the state and taxpayers for more money to maintain the status quo.

* Look to balance the budget by reducing expenses to fit revenue sources. “This could take many forms but would include analyzing all expense categories and re-evaluating service lines,” he said.

* Continue to look for other sources or revenue and capital. “In my opinion, this is basically the effort to look at public/private partnerships since HHSC does not have ready access to capital other than through the state,” Lo said.

* Brian Perry can be reached at