Hospital system seeks cash transfusion

Squeezed by rising labor costs and declining reimbursements for patient services, Hawaii’s public hospital system is seeking a $14 million emergency appropriation from the state.

The Hawaii Health Systems Corp. employs more than 4,000 people (approximately 1,500 in Maui County) and operates 15 facilities statewide, many in rural communities underserved by the medical community.

In Maui County, those include Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital. On Maui and Lanai, HHSC is the only provider of acute-care medical services. Other HHSC facilities include Hilo Medical Center on the Big Island and Oahu’s Leahi Hospital.

On Monday, acting HHSC President and Chief Executive Officer Avery Chumbley detailed the health system’s financial dilemma in meetings with state lawmakers and separately with Bruce Coppa, Gov. Neil Abercrombie’s chief of staff, and Kalbert Young, director of the state Department of Budget and Finance.

The meetings went “really well,” said Chumbley, a former Maui state senator. “They understood the precarious situation we’re in and were willing to engage in a discussion about the possibility of an emergency appropriation.”

The health system’s need for $14 million stems from what Chumbley called “several key shortcomings.” He said those include:

* For fiscal year 2013, which ended June 30, the statewide system for rural and Neighbor Island residents is $1.3 million short in paying for collective bargaining cost increases for employees.

* For the current fiscal year 2014, there’s a shortfall of $7.2 million to cover labor cost increases.

* The impact of federal budget cuts, which have reduced Medicare reimbursements, has cost HHSC $2.6 million annually.

* The impact of Affordable Care Act cuts and federal sequestration have an annual impact of $2 million.

* The unknown impact of pending contract arbitration with Hawaii Government Employees Unit 13 (excluded and exempted professionals).

Although the emergency appropriation is needed as soon as possible, Chumbley said that the earliest the governor and state lawmakers could make the money available would be in late February or in March, after the Legislature goes into its regular session in January.

Chumbley pointed out that only the governor can propose an emergency appropriation.

If Abercrombie doesn’t support it, “it can’t go anywhere,” he said.

A request for comment from the Governor’s Office went unanswered late Tuesday afternoon.

West and South Maui state Sen. Roz Baker, vice chairwoman of the Senate Health Committee, said she wasn’t surprised by the request because it’s now clear that the Legislature did not set aside enough money to cover HHSC’s costs.

Maui legislators would “fully support” the additional funding and join forces with other Neighbor Island lawmakers to make sure the governor “hears the need” for the emergency appropriation and puts in the request to lawmakers, Baker said.

Health care is a “core function” of government, she said. “We want to make sure the hospitals have the appropriate level of operating funds so we don’t have to cut services.”

Maui Memorial Chief Executive Officer Wesley Lo said there are no plans in the Maui region to cut services or to lay off employees. However, if the emergency appropriation were not approved, Maui Memorial would need to look at dipping into its cash reserves to pay its bills, he said.

“The appropriation would help us ensure continued high-quality services,” he said.

The trend of higher labor costs and declining federal reimbursements for patient services continues to be worrisome, Lo said.

“We’re extremely nervous. Anything can happen,” he said.

Lo added that Maui region facilities are in the “best position” financially of any in the HHSC system.

“We’re going to do our best,” he said.

HHSC’s predicament comes on the heels of last year’s defeat in the state Legislature of a proposal to privatize public hospitals, including Maui Memorial. The proposal ran into a buzz saw of opposition from labor union leaders and lawmakers alarmed about the potential loss of jobs if hospitals were privatized and taken over by profit-seeking corporations.

Chumbley said that HHSC pays higher salaries and has more costly benefits for employees than private hospitals in the state or of facilities nationwide.

In Hawaii, labor costs at public hospitals overseen by HHSC amount to 76 to 77 percent of all expenses, he said. That compares to a national median of 51 percent for labor costs at facilities nationwide and 48 percent at private hospitals in Hawaii.

When asked about the cost disparity, Chumbley pointed to civil service collective bargaining and its high costs. For example, state hospital employees receive 21 vacation days, 21 sick leave days and 14 paid holidays while working at facilities that need to provide services 24 hours a day, seven days a week, he said.

“That’s expensive,” he said, adding that union contracts don’t give hospital managers enough flexibility to run an around-the-clock system.

Chumbley said that if the emergency appropriation is not approved, then HHSC would need to look at a reduction of services and, possibly, employee layoffs. This fiscal year, HHSC has a projected loss of $28 million, based on operating revenue of $535 million and expenses of $655 million, he said. That’s an operating loss of $120 million.

That amount was reduced to the projected loss figure of $28 million because the HHSC system is subsidized with a general fund appropriation of $92 million, Chumbley said.

General fund appropriations from the state make up only 14 percent of hospital revenue systemwide, he said. Sixty-five percent of revenue comes from Medicaid, Medicare and Quest reimbursements.

Eighty percent of the people in Maui County receive health care at a Maui region facility within the HHSC system, he said.

“We have very limited choices,” he added.

Although there are no ongoing privatization talks with Phoenix-based Banner Health, Chumbley said that the HHSC is still exploring public-private partnerships.

“It doesn’t only have to be a system by the name of Banner,” he said. “There are other systems looking to expand in hospital operations. There are other possibilities out there, and we’re continuing to explore those.”

Chumbley said a public-private partnership is a “very good option that will result in improved quality of care and expansion of services in the community.”

HHSC officials are going to try to reach out to the community and other stakeholders, including labor unions, to “explain why this is the right thing to do,” he said.

While there’s been a fear that employees would lose jobs in privatization, that’s not necessarily so, Chumbley said. A public-private partnership could result in greater employment security and possibly increase the number of employees needed, he said.

Randy Perreira, executive director of the Hawaii Government Employees Association, was not available for comment late Tuesday, according to his senior adviser, Jodi Chai.

* Brian Perry can be reached at