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Lease dispute becomes lawsuit for cancer institute

The Pacific Cancer Institute, shown here in a photo taken Tuesday, and the Hawaii Health Systems Corp. are engaged in a legal battle over the institute’s lease agreement. The institute is the only facility providing radiation therapy on the island. The Maui News / MATTHEW THAYER photo

The Hawaii Health Systems Corp. filed a lawsuit in Circuit Court on Tuesday, alleging that land leases it entered into with the Pacific Cancer Institute in 2005 and 2012 are illegal and should be voided to comply with federal law.

The institute operates on approximately 8,000 square feet on the emergency room side of the Maui Memorial Medical Center campus in Wailuku. The facility is the only provider of cancer radiation therapy in Maui County. Before it opened in 1993, cancer patients needed to fly off-island for treatment.

A couple of years ago, Tennessee-based Alliance Oncology purchased 95 percent ownership in the institute for nearly $10 million from Dr. Bobby Baker, the institute’s founder.

Baker said he was saddened that the announcement of the lawsuit could upset patients “and cause them to worry about where they are going to receive their treatment.”

Both sides of the dispute said maintaining radiation cancer treatment for Maui County patients remained a priority.

On Tuesday morning, the quasi-government HHSC reported that, after more than a year, it had reached an impasse on ground lease negotiations with the institute. The 2012 lease has an initial 25-year term, with an option to extend for up to 15 years.

According to the HHSC, a new lease is necessary because the current one violates two federal laws: the Stark Law and the anti-kickback statute.

“Under these laws, PCI is required to pay HHSC the fair market value of the goods and services that it currently receives at no cost or steeply reduced cost,” the state public hospital agency says. “These goods and services include utilities, patient and staff parking, common area usage, generator usage and, until very recently, linen service, medical gasses, pest control services, facility improvements and many other items that are not adequately addressed in the existing ground lease.”

There was no immediate comment from HHSC on why it would enter into leases that violated federal laws or didn’t adequately address goods and services.

The cancer institute issued a statement Tuesday evening.

“We at PCI are saddened to see that HHSC has abandoned lease negotiations — begun in good faith as part of a longstanding partnership focused on serving our community — in favor of filing a lawsuit that we believe is inaccurate and not supported by the facts,” the statement said.

On July 1, the HHSC transferred operations at Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital to Maui Health System, affiliated with Kaiser Permanente.

“Maui Health System shares HHSC’s concerns that the existing HHSC/PCI lease does not comply with federal laws because PCI receives free or below-market services and utilities,” spokeswoman Chastell Ely said. “Unfortunately, the lawsuit is the result of PCI’s unwillingness to enter into new, compliant arrangements with HHSC.”

The alleged violations of federal law in the HHSC/PCI lease were discovered when HHSC officials were reviewing contracts in preparation for the transfer of public hospitals in Maui County to Maui Health System. The HHSC “self-reported” the violations to the U.S. Office of the Inspector General.

That office is responsible for oversight of federal laws and may assess penalties against HHSC as a result of the noncompliant lease arrangement, the state agency said.

The federal office set a Jan. 31 deadline for HHSC to execute a compliant lease with the cancer institute or terminate the lease arrangement. Legally, that would require the institute to stop delivering daily radiation therapy to cancer patients, HHSC said.

In its statement, PCI said: “It is very important to note that no government or regulatory authority has issued any opinion, conclusion or finding that the ground leases violate any applicable laws or regulations. HHSC has merely asserted its own legal conclusion in the course of these negotiations that PCI disagrees with and looks forward to addressing in court.”

According to the HHSC, the Stark Law and anti-kickback statute prohibit hospitals from providing free or discounted goods or services.

“All goods and services must be procured at fair market value and the terms must be expressly set forth in a lease,” the agency said. “These laws were enacted to prevent fraud and abuse of the Medicare program and to protect the financial health of the Medicare program for future participants.”

HHSC Chief Executive Officer Dr. Linda Rosen said: “Our top priorities are to ensure that continued, uninterrupted radiation therapy services are accessible to patients in Maui County and to be fully compliant with the law. Because we’re committed to these goals, HHSC has been negotiating in good faith with PCI for more than a year. The deadline . . . imposed by the federal regulator to end the current lease arrangement is fast approaching, and we remain at an impasse.

“HHSC has been forced to turn to the court system in an effort to prevent the loss of these vital services to Maui County and to be compliant with the law,” she said. “Notwithstanding the filing of this complaint, HHSC remains open and ready to negotiate a legally compliant lease with PCI.”

In an email, Baker, the founder of the Pacific Cancer Institute, said he has not been directly involved in negotiations but has been staying abreast of them.

“I am confident that neither party wants any patient on Maui to have to travel unnecessarily when we have one of the best facilities in the country for cancer treatment,” he said. “Who would take any step to halt this type of lifesaving treatment for Maui? I can’t even imagine anyone in Hawaii participating in such a devastating act.”

Baker said all of the leases and agreements were drafted by attorneys representing both PCI and HHSC.

“I am not an attorney, and I have to depend on their expertise to ensure that these types of agreements are done correctly,” he said.

Baker said developing the Maui cancer institute and serving patients in Maui County have been among the “most important things in my life.”

The cancer institute “is my baby,” he said. “I spent most of my professional life fighting to make sure that Maui cancer patients have access to state-of-the-art care. I don’t plan to stop that fight anytime soon.”

In its statement, PCI said its focus would remain on delivering “compassionate and effective radiation therapy services we’ve provided for many years and that our patients depend on.”

“We have and will continue to do so, lawfully and in accordance with all applicable rules, regulations and standards and will vigorously defend our position in this litigation,” the institute said.

The institute provides patients with advanced treatment with its TrueBeam STx. It delivers precise amounts of radiation to tumors while compensating every 10 milliseconds for patient movement. Radiation therapy shrinks tumors and kills cancer cells while doing as little damage as possible to surrounding tissues and organs.

The facility’s main services include treatment of brain and lung tumors and breast and prostate cancers. It also serves patients with colon, skin, pancreatic and metastatic cancers as well as kidney and liver tumors.

* Brian Perry can be reached at bperry@mauinews.com.

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