After 13 years, Wesley Lo is moving on

Wesley Lo ends 13 years at Maui Memorial Medical Center on Monday — 12 as chief executive officer. Lo reflected on his years at the helm of Maui’s only acute-care hospital and other hospitals in the Maui Region of Hawaii Health Systems Corp. in an interview last week. The Maui News / MATTHEW THAYER photo

When Wesley Lo took the reins as chief executive officer at Maui Memorial Medical Center in July 2004, there was little to foretell that he’d be anything but another in a long series of revolving-door, short-term administrators.

For the 20 years prior to Lo, the hospital had been led by 16 administrators.

And, there was nothing to predict what would happen with Maui County hospitals during the 12 years of Lo’s leadership — the building of a new four-story wing, the more than doubling in annual hospital revenue from $117 million in 2004 to $245 million this past year, the regional reorganization of the quasi-public Hawaii Health Systems Corp. in 2007 or the pending privatization of Maui Region hospitals — Maui Memorial and Kula and Lanai Community hospitals — that employ 1,600 people.

Monday will be Lo’s last day — a bittersweet moment before he succeeds Tony Krieg next month as chief executive officer at Hale Makua Health Services.

“It breaks my heart,” he said of his departure ahead of the July 1 transfer of Maui County public hospitals to Kaiser subsidiary Maui Health System. “I mean, I want so badly to be here at the end. I’ve lived and breathed it so long. I’m very sad about it.

Wesley Lo said he had hoped to remain as chief executive officer when Maui’s public hospitals transfer to the administrative and operational control of Kaiser Permanente’s Maui Health System. But legal and other delays did not make that possible. “It breaks my heart,” he said. “I wanted so badly to be here at the end. I’ve lived and breathed it so long. I’m very sad about it.” The Maui News / MATTHEW THAYER photo

“But, at the same time, I think . . . the people here are going to do just fine during this transition.”

Serving as head of Hale Makua is a “tremendous opportunity” to help improve post-acute health care, he said. “That’s my next venture. I’m excited to be part of that.”

Steep learning curve

In 2004, Lo was a “numbers guy” who had been Maui County’s Department of Finance director from late 1999 to late 2002. For nine months before joining Maui Memorial, he had been chief financial officer for Maui Radiology Consultants.

Nevertheless, he was ill-prepared to take over as head of Maui’s only acute-care hospital. He had been the hospital’s chief financial officer for about a year when then-Chief Executive Officer John Schaumburg resigned because of health reasons.

"I think (that there were) mistakes by everybody; us and the Governor’s Office and the unions and everybody. . . . We lost sight of the fact that health care was the most important thing and not the negotiation of a transaction. . . . We’ve just got to move on. — Wesley Lo, chief executive officer of Maui Memorial Medical Center

Lo was asked to “just step in for a little while,” and he quickly ran into a steep learning curve.

“It was almost comical,” he said. “When people would use their (medical) terms, we’d go on Wikipedia.”

Part of Lo’s job was to be the hospital’s front man and to “go get pounded, frankly,” when he’d meet with doctors demanding improvements at the hospital.

Dr. Donna McCleary, who had been with Kaiser Permanente and now serves as Hale Makua board chairwoman, once took Lo aside in his early days as hospital chief.

“She knew I was trying. She goes, ‘Oh Wes, we’re going to have a turkey shoot here, and you’re going to be the turkey.’ ”

Facing competition

Without a doubt, Lo faced more than complaints about the hospital that opened in 1952.

“We had to fix the buildings,” Lo said. “The buildings were falling apart.

“The first couple of years was taking care of the basics” and “finding out what people wanted,” he said.

Add to that disputes among physician groups for a time of “a lot of turmoil,” Lo said.

Maui Memorial’s poor conditions created fertile ground for a new player — Dr. Ron Kwon’s proposed Malulani Health and Medical Center.

Its plans called for a new, $180 million, 100-bed hospital on 40 acres in Kihei. The proposal drew public support as Kwon argued that Maui needed a full-service hospital alternative to Maui Memorial.

At stake was the future of Maui’s health care and what was then estimated to be $200 million annually (now $240 million) in hospital revenues in Maui County. But the State Health Planning & Development Agency needed to determine if two hospitals could survive.

Lo maintained that Malulani would “siphon off profitable services” from Maui Memorial “to the detriment of health care services for the rest of the community.”

Eventually, in 2006, Lo and Maui Memorial “won,” but in hindsight it was a Pyrrhic victory.

“After we ‘won’ that . . . battle. I don’t know what we ‘won,’ ” he said.

Public pressure was on Lo and his team to deliver improved health care services.

“The expectations of the community were huge,” he said. “The ire of the community was there. . . . It was hard to walk through the hospital after we won.”

Delivering more services, improvements

In November 2006, a new $42 million, 75,000-square-foot wing opened. It included a new lobby and admitting area, a physical therapy/occupational therapy department with a gym, an intensive care unit and a 24-bed medical-surgical unit. In 2010, construction began on a $3 million helipad. It became operational in September 2011, allowing critical patients to be flown directly to the hospital.

In 2007, the hospital’s Heart, Brain & Vascular Center opened. In 2008, a $4.2 million renovation of the hospital’s Emergency Department was completed.

And, in 2011, the hospital’s heart program was launched. In the same year, the program performed its first angioplasty.

Now, the program does open-heart surgeries, angioplasties and heart valve repairs and replacements, among other procedures.

The hospital’s heart program is one of the improvements at the hospital that has allowed Maui patients to stay on the island for treatment.

“It was ridiculous that people came in here and they’d have to fly to Honolulu for heart attacks or strokes,” Lo said. “If I remember correctly, we were flying hundreds of people to Honolulu, just for heart-related things. Some of it was nothing. It was just indigestion, but you can’t tell unless you do certain procedures.”

Now, the hospital has seven to eight heart surgeries per month, he said.

Creating a region

Before 2007, the 213-bed Maui Memorial was a profitable piece of a larger pie — the state’s public hospital system —  Hawaii Health Systems Corp. It oversees hundreds of hospital beds on Maui, Lanai, the Big Island, Kauai and in rural Oahu.

If Maui Memorial were independent, it could invest in providing new patient services, make money, recoup costs and repay debt, Lo said. “That’s business.”

But money made at Maui Memorial went to support the statewide system.

“That doesn’t make sense,” Lo said. “Why would we grow services if all the money we make goes someplace else?”

The quandary led to the hospital’s campaign for regionalization, an effort aimed at gaining Maui Memorial access to investor capital.

“Everybody was mad at us,” Lo said. “We were ostracized. HHSC was mad.”

Eventually, with the help of Maui County’s contingent of state lawmakers at the Legislature, Lo led the effort to pass legislation for organizational reform of HHSC.

Act 290 became law 2007. It reorganized HHSC facilities into five regions with each region governed by a local board of directors. Each regional board maintains custodial care over its financial assets and real property. And, the reform allowed each region semi-autonomy over its revenue and spending.

Importantly, decisions about health care on Maui could be made here and not in Honolulu, Lo said. For example, the Maui Region was able to borrow money from JP Morgan to launch Maui Memorial’s heart program.

Great Recession fallout

Lo also received a commitment from a Mainland bank to borrow $30 million for the hospital, he said. But, with the Great Recession, that commitment was pulled after only $11 million was loaned.

Lo described his predicament as “devastating.” He told the bankers: “You guys just put me in default!”

“What the hell were we going to do?” he recalled asking. “We had so little cash on hand it was scary.”

Normally, the hospital has days of cash on hand, but the joke was it had only “minutes of cash on hand,” he said.

At one point, the hospital had only $1 million cash on hand, and its payroll for more than 1,000 employees was $3 million to $4 million per pay period, Lo said.

Out of desperation, the Maui Region borrowed $10 million from the state, and the state turned around and gave emergency appropriations to other public hospital facilities also in financial distress, he said.

“I was going, ‘What the hell? How come they get free money and I’ve got to borrow it?’ ” he said.

Nevertheless, “we ended up paying it back,” he said.

A financing dilemma

Lo said that the hospital needed capital that the state wouldn’t provide, so administrators looked for ways to improve the Maui Region’s financial condition.

If it were strictly a business, more profitable services would be offered and unprofitable ones done away with — “change the product mix,” he said.

Working in government is different, he said.

“In government, you have about a billion stakeholders that want a piece of the pie,” he said. “There’s not enough money to go around.”

So, with regionalization helping but not fixing problems, Lo said he began pursuing a public-private partnership. At first, a law was passed in 2009 to allow the Maui Region to seek partners, he said.

“We thought we had it made,” he said.

But, as it turned out, the law was missing a key element needed to pave the way for privatization. It didn’t have lawmakers’ declaration of a clear legislative intent to privatize public hospitals in Maui County.

In the 1997 Konno v. County of Hawaii case, the Hawaii Supreme Court ruled that Hawaii County could not use a state statute intended to finance construction of garbage-to-energy plants as a means to privatize operations. The court found that governmental entities were not able to privatize civil service positions “absent clear legislative support for privatization.”

The legal issue meant that state lawmakers would need to clearly say that privatization would be allowed for Maui County public hospitals. While hospital officials and state lawmakers weighed their options — and the hospital had four interested suitors for privatization at the time — the economy tanked, and the privatization movement “kind of crashed and burned, so we put it on the shelf for a while,” Lo said.

Banner Health

Then, in 2012, the Maui Region announced it was exploring a public-private partnership with Banner Health, headquartered in Phoenix.

“Banner came, and we failed,” he said. “They were like the first Costco or Wal-Mart to come into a small community. . . . They got clobbered. . . . Nobody was ready for a change.”

Since having a partner in hand didn’t work, the Maui Region sought an approval process from the Legislature to work with hospital labor unions to find a partner, Lo said.

A bill to do that “made it to the last day of the session, and we lost,” he said. “I was about ready to quit then. I said, ‘You know, we’re done. Can’t get it with a partner; can’t get it without a partner.’ ”

Then, Lo decided to “give it one more shot.”

Because lawmakers said that they wanted a Hawaii company to be considered as the Maui Region’s partner, he said he called Ray Vara, president and chief executive officer of Hawaii Pacific Health, and proposed putting together the structure of a partnership deal that could be shown to lawmakers before the beginning of the 2015 session.

Vara agreed, and Kaiser Permanente Hawaii Region President Mary Ann Barnes said Kaiser would be interested, too.

Eventually, that led to the enactment of Act 103, the Maui hospitals privatization bill, which Lo said was a landmark piece of legislation, “the biggest privatization event in the state of Hawaii.”

He credited Maui County’s state legislators, including the late Rep. Bob Nakasone, for paving and leading the way in making privatization happen. “It was not easy,” he said.

After the law was passed, Kaiser and Hawaii Pacific Health competed in an extended selection process, and Kaiser eventually emerged as the winner.

Stalled in transition

The changeover of Maui hospitals from HHSC to Kaiser subsidiary Maui Health System was supposed to happen July 1 of this year, but after public labor union challenges and uncertainty over a law providing worker pension and severance benefits, the date has been pushed back a year to July 1, 2017.

Maui Region officials have asked state legislators for $5.65 million to hire additional nurses and doctors as part of a new plan that they hope will fill gaps in staffing and services through July 1. Earlier, the Maui board had discussed cutting beds and services, but the additional funding from the state would prevent those reductions.

The money would be used to hire 55 nurses and other staff and allow the hospitals to contract with Kaiser to recruit physicians in key positions, including a neurosurgeon and trauma and orthopedic surgeons, as well as advanced practice registered nurses.

After Lo’s departure, Dr. Barry Shitamoto will serve as Maui Region CEO until the transfer to Kaiser is complete.

Lo admitted that now “things are kind of messy,” but “we have a plan to shore up things.”

“I think (that there were) mistakes by everybody; us and the Governor’s Office and the unions and everybody,” he said. “We lost sight of the fact that health care was the most important thing and not the negotiation of a transaction. . . . We’ve just got to move on.”

Kaiser has named Ray Hahn as senior vice president and Maui area manager, which includes being administrator of Maui Memorial, Kula and Lanai Community hospitals.

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