Initiative for privatization of hospitals remains alive

WAILUKU – A push to privatize Hawaii’s public hospitals, including Maui Memorial Medical Center, is still alive, but the state Legislature needs to pass enabling legislation before negotiations can resume between the state hospital system and a potential partner.

For years, the state has been struggling to pay the rising costs of hospitals on the Neighbor Islands, and entering into a public-private partnership would allow Maui Memorial, Kula and Lanai Community hospitals to improve infrastructure and expand services, said members of the Maui regional system board of the Hawaii Health Systems Corp. at a public meeting hosted on Maui earlier this month by Senate Health Committee Chairman Josh Green.

The HHSC manages and operates Neighbor Island hospitals as well as three facilities on Oahu – Leahi Hospital; Maluhia, a skilled nursing and intermediate care facility; and Kahuku Medical Center.

Since last summer, board members had been in discussion with Arizona-based Banner Health, one of the country’s largest nonprofit hospital systems. But public union leaders and hospital employees, including nurses, clerks and hospital technicians, were among those alarmed that privatizing the hospital would jeopardize current and future employees. More than 100 testifiers submitted written testimony against the hospital privatization measure, and the bill died in conference committee.

Because enabling legislation was not passed last year, negotiations have since come to a standstill, board members said.

“We are currently not in any active talks with Banner,” said Avery Chumbley, acting chief executive officer of the Hawaii Health Systems Corp. “Banner indicated they may still be interested, but it would require us to get the enabling legislation passed, and even then they have not made any commitments.”

Banner Health is not the only option on the table, Chumbley said. The board also has reached out to local health care systems, including Hawaii Pacific Health and The Queen’s Medical Center, as well as potential Mainland partners that operate on the East Coast.

“It’s too early to say at this point, but not all talks have ceased,” Chumbley said. “We’re starting to explore (our options) and see who would be interested in a partnership.”

Chumbley said the state does not have “the appetite to fund us,” and entering into a private partnership would allow access to more capital, new technology, and research and updated training for employees.

“We can’t get as good as we want to be unless we have the public-private partnership,” Chumbley said.

He admitted, though, hospital administrators were “underprepared in the delivery and information sharing with stakeholder groups” when the measure was first introduced last year, a mistake they are working to rectify. He said a detailed communications plan will be shared with all employees, public union members, other health care providers and other stakeholders before any draft legislation is submitted.

Green, a lawmaker and Big Island emergency room doctor, said he hopes to pass enabling legislation this coming session, but he must first ensure that “we are all on the same page.”

The administration, hospital staff and potential partner need to identify essential services and hospital needs that may not be compromised, and then other areas that may reach some sort of compromise, Green said earlier this month when he toured the facilities at Maui Memorial Medical Center. Later, he led a public “talk story” session attended by hospital staff and administrators.

“You do not want a partnership to blow up in your face,” Green told attendees at the meeting. “If someone else comes in, make sure we get guarantees about three things – continuity, long-term support and support of local economy and workforce.”

HHSC’s hospitals currently spend about 68 percent of their operating budgets on personnel, whereas most private hospitals spend less than 50 percent, according to local news reports. If a private entity like Banner were to take over, it is unclear whether jobs or employee benefits would be cut, board members said.

In August, Chumbley said public hospitals in Hawaii have labor costs of 76 to 77 percent of overall expenses while the national median is 51 percent for labor costs and 48 percent for private hospitals in Hawaii.

Responding to Chumbley’s comments at the time, Hawaii Government Employees Association Executive Director Randy Perreira acknowledged that overall labor costs at public hospitals are higher as a percentage of their overall budgets compared with those at private and national hospitals. But public hospitals don’t have the same overhead and depreciation costs of private and national hospitals, so the labor cost percentage at state hospitals is skewed higher.

In fact, public hospital employees have lower base wages than their counterparts in private hospitals, he pointed out. However, public employees have more vacation and sick leave. (They receive 21 vacation days, 21 sick days and 14 paid holidays.)

An attempt last week to reach Maui and Oahu HGEA offices for comment were unsuccessful. The union represents nurses, social workers, ward and billing clerks, dietary workers and lab and radiology technicians. The United Public Workers represents licensed practical nurses, housekeeping staff, groundskeepers, cooks and other blue-collar occupations.

HHSC Maui Region Chief Executive Officer Wesley Lo said “something needs to be done” for Maui Memorial and other Neighbor Island hospitals to continue providing competitive and quality care. He acknowledged that many issues need to be hashed out with stakeholders, such as employees and their unions, before moving ahead with a plan.

“We’re not in a sustainable pattern right now,” Lo said last week. “Our obstetrics wing is from 1952, and to replace that building would cost half a billion dollars. Will the state magically come up with half a billion? I’d say that’s a low probability.”

The HHSC anticipates a $58.5 million shortfall for the fiscal 2014-15 biennium budget, he said.

The state doesn’t have the funds to keep up with the changing health care system, and there is a national trend of smaller community hospitals partnering with larger companies to share not only money, but research and technology they’d otherwise not have.

“Size does matter in the health care system, and if small hospitals don’t have the resources to make those changes, they will continue to deteriorate,” Lo said. “We’re trying to keep up with dramatic changes in the health care system, and also ease the burden on the state and the taxpayers.”

The hospital will host community meetings, probably in October, to discuss public-private partnerships and gather public comment, Lo said.

* Eileen Chao can be reached at