Panel endorses privatization for public hospitals

The state Senate Health Committee recommended passage this week of a bill to privatize public hospitals, including Maui Memorial Medical Center, Kula Hospital and the Lanai Community Hospital.

But the panel advanced the measure after deleting a provision that would have made hospital employees private instead of public civil service employees, according to West and South Maui Sen. Roz Baker, the committee’s vice chairwoman.

Senate Bill 1306 has a “long way to go,” said Baker, one of the bill’s sponsors, along with Maui Sens. J. Kalani English and Gil Keith-Agaran.

Much more dialogue needs to occur to dispel inaccurate information about the measure, Baker said Thursday afternoon. She said she would like to see more dialogue among representatives of public employee unions, the Hawaii Health Systems Corp. (which manages and operates Neighbor Island hospitals for the state now) and Banner Health, one of the country’s largest nonprofit hospital systems.

Last week, a House version of the same bill came under withering attack from public employees and union leaders who maintained that privatizing the state’s hospitals was a bad idea because a private entity would put profits ahead of public employees and health services. 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 committees recommended establishing a nine-member task force to study the feasibility of privatizing state hospitals.

On Wednesday, the Senate Health Committee maintained the concept of privatizing facilities and did not recommend setting up a task force, Baker said.

She said she and committee Chairman Josh Green of the Big Island agree that the HHSC’s current operating model for medical facilities, especially acute-care hospitals, “is not sustainable.”

“We just don’t have enough money in the state coffers to take care of health care needs,” Baker said.

The state needs an infusion of capital, she said, and Banner is an “attractive” alternative.

However, she said that HHSC and Banner need to do more to engage all stakeholders. She said it was a positive development to hear that Banner had met with doctors and other residents on the Big Island.

Baker said it was unclear what the bill’s prospects will be, especially early in the lawmaking session.

“You can get everybody to agree in concept,” she said. “But the devil’s always going to be in the details. Change is always going to be hard.”

Baker recalled that moving public hospitals years ago from the Department of Health’s former Division of Community Hospitals to the HHSC was difficult. Now, the idea of transferring the facilities to a nonpublic entity is an “even bigger change,” she said. It’s a proposed move that many find “unsettling.”

Another provision added by the Senate Health Committee was that any agreement that would be achieved by the HHSC and a private entity would need to be approved by a concurrent resolution of both the state House and the Senate, Baker said. There’s precedent for such an action in state land acquisitions, sales or exchanges, she pointed out.

Now, the bills have been referred to the House Finance and the Senate Ways and Means committees, she said. There’s a March 7 deadline for bills to cross over. If the House and the Senate don’t agree, the bills would come before a conference committee for disagreements to be hashed out.

The House and the Senate bills are essentially enabling legislation for the HHSC to turn over management and operation of public hospitals to a private nonprofit. Banner Health has been mentioned as a possible nonprofit to take over the hospitals, but it is not named in the bills.

The Hawaii Health Systems Maui Regional System board of directors has been in discussions with Banner since at least the summer of last year. Banner representatives have visited Maui, and Maui officials traveled last summer to Banner’s headquarters in Phoenix and toured facilities in Arizona, Colorado and Alaska.

The idea of turning over public hospitals to a nonprofit arises as the state struggles to pay rising health and acute-care costs. 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.

According to Wesley Lo, chief executive officer of the HHSC’s Maui Region, a public-private partnership would allow public hospitals to expand services and upgrade infrastructure.

HHSC doesn’t have the capital to spend an estimated $950 million to improve aging facilities, Lo reported. 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 of net losses from 2011, he 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.

* Brian Perry can be reached at