Has Hawai‘i’s healthcare crisis already begun?

LIHU‘E — Hawaii Health Systems Corporation’s Kaua‘i regional chief executive officer painted a grim picture of the future of healthcare in the state to the governor’s council of advisors Thursday evening.

“You will be hearing a lot over the next two months from the Hawaii Health Care Association, the government and hospitals about the challenges all hospitals are facing, and the bills we are sending into the (state) legislature to deal with these costs,” Orianna “Ori” Skomoroch told the council.

Since 1996, Hawaii Health Systems Corporation (HHSC) has overseen the state’s 12 public hospitals. Without changes in certain laws, however, Skomoroch fears the level of care cannot continue.

Statistics from the American Hospital Association show that, since 2000, Hawai‘i hospitals as a whole are operating at a loss.

Last year, West Kauai Medical Center at Kauai Veterans Memorial Hospital (KVMH) at Waimea lost $4.6 million, despite revenues of $20 million, Skomoroch said. HHSC’s other Kaua‘i hospital, Samuel Mahelona Memorial Hospital in Kapa‘a, lost $2.9 million.

According to Skomoroch, a lot of the problems stem from HHSC’s government affiliation, and the red tape and regulations that go with it.

Red tape and regulations

In 1996, the state Legislature adopted a bill establishing HHSC as an independent agency, out from under the community-hospital division of the state Department of Health, and the sole overseer of Hawai‘i’s public hospitals.

With that comes its own budget, for better or worse. On the negative side, for example, it’s difficult to allot money based on individual need.

“If I need to buy computers (for one hospital), we have to buy computers for all 12 hospitals,” Skomoroch said.

On the other hand, HHSC has more flexibility in financing.

“Because HHSC is no longer under the Division of Community Hospitals and the Department of Health, we can lease or rent equipment or get a loan, as long as we can afford to pay it back,” Skomoroch said. “There are a lot of positives to it, but I’m still under the constraints of the state.”

As such, budget allocation is in the hands of the state Legislature, and the HHSC does not get a seat at the bargaining table.

“How ridiculous is that?” said Laurie Yoshida, Gov. Linda Lingle’s Kaua‘i liaison and a frequent presence at the monthly council meetings.

One state regulation Skomoroch wants desperately to get rid of is procurement, a policy that requires purchases from certain government-approved suppliers.

“All of these are things that other state agencies do, but most of the stuff we buy is not on other (government) lists,” Skomoroch said. “We’re not going to buy surgery supplies at Wal-Mart.”

Instead, an inordinate amount of paperwork passes back and forth between the HHSC and government officials, requesting approval for certain products and services.

“It’s so complex, with so much paperwork, I had to hire two different people to deal with the new procurement laws,” she said.

Cutting through the red tape takes time as well. Skomoroch said she just received approval from the state Legislature to shut down the on-site laundry operations at one of Kaua‘i’s hospitals in favor of independent, off-site contractors. She put in the request six years ago.

Procurement also leads to higher costs.

“There are two stations with high propane and high diesel that we need to run the hospitals, but they’re not on any list with the state,” Skomoroch said.

No longer able to buy from the lowest bidder, HHSC pays a premium from another dealer.

“That’s why procurement is so devastating to us,” she said.

The state-approved lists not only limit purchasing power, but also selection. Because medical supplies are unique, HHSC often has trouble finding them through government channels, and anything off-list needs approval.

“Your choice is almost nothing, or it’s extremely limited,” Skomoroch said.

“It’s not (like buying) office supplies,” Yoshida said.

For approval, Skomoroch said, “You have to prove you can’t find it in Hawai‘i.”

And the only way to prove it is with a paper trail.

“It makes sense for some things, but it doesn’t make sense for others,” said councilwoman Barbara Smith.

Hemorrhaging money

Healthcare Association of Hawaii (HAH) statistics show that Hawai‘i’s Medicare reimbursement rate is among the lowest in the United States, at 37 cents on the dollar. It also takes three months to six months for the payments to come through.

“No business can survive when it is only paid 37 cents for every dollar of services,” the HAH stated in a report entitled, “A Perfect Storm: The forces shaping Hawai‘i’s approaching healthcare crisis.”

That’s especially crippling to a state with a high percentage of elderly residents.

According to HAH, Medicare, Medicaid or Med-QUEST patients accounted for 40 percent of hospitalizations in the state in 2000, and annually, 25 percent of Hawai‘i’s Medicaid budget is spent on inpatient long-term care.

As the fourth-largest public-hospital system in the country, and the state’s single-largest provider of both emergency services and long-term care, HHSC finds itself in a tighter pinch than most.

As part of the federal Balanced Budget Act of 1997, some hospitals could be qualified as critical access hospitals (CAH) which, by definition, would be reimbursed in full for all reasonable costs, including payroll and, depending on proximity to other providers, ambulance services. Until then, most public hospitals were budgeted based on projected costs for the coming fiscal year.

Essentially, then, a CAH is reimbursed based on actual cost, not prospective payments.

While the program has been widely heralded as a striking success, it is not without its limitations. For one, to qualify as a CAH, a maximum of 25 beds can be allotted for acute care, a number too small for some.

“As (patients) sit in our acute beds, waiting for acute care, we are only getting reimbursed for lower-level care,” Skomoroch said.

Furthermore, reimbursement rates are negotiated with insurance companies and adhered to, no matter what. A particular diagnosis or treatment leads to a set reimbursement, without taking into account other factors.

For example, a 35-year-old active, healthy stroke victim can recover in less time with less money than a 75-year-old diabetic, for whom a stroke could mean months, if not years, in the hospital.

“No matter what the cost of treatment, you’re still going to get the same rate,” Skomoroch said.

Making matters worse, HAH reported that annual industry losses from charity care and bad debt are up to $100 million from just $52 million five years ago.

No money, mo’ problems

HHSC also suffers from problems more common to financially-strapped government agencies.

For one, information-technology upgrades have been slow to come. HHSC hospitals are not yet equipped to take on electronic medical records.

“Tech-wise, I am in the Stone Age,” Skomoroch said.

Also, attracting and retaining top-quality staff remains difficult. Skomoroch, citing low wages and stress-induced burnout, lamented Kaua‘i’s high physician turnover rate.

“All doctors get a subsidy to make a living, but the reimbursement from (the Hawaii Medical Service Association) is the lowest in the U.S.,” she said. Skomoroch said she needed 16 physicians at KVMH and 10 or 11 at Mahelona.

Wilcox Memorial Hospital, a privately-funded facility in Lihu‘e, suffers from this as well, she said, struggling to keep three cardiologists on staff at any one time.

With 3,400 employees across five islands, HHSC is one of the largest employers in the state, yet Skomoroch said it’s becoming difficult to keep a full staff of qualified registered nurses. To alleviate the staffing crunch, HHSC is working with the University of Hawai‘i to funnel physicians and RNs from medical school to Hawai‘i hospitals.

Despite the problems, HHSC does a pretty good job of taking care of itself. For fiscal year 2005, HHSC collected $317 million of its budgeted $354.5 million in expenditures, making up the rest in state general-fund appropriations. At 10 percent of its operating budget, HHSC’s government support ($37 million for FY 2005) is half of the 20-percent industry standard for public hospitals.

Progress in other areas

Skomoroch was quick to list important accomplishments made by HHSC hospitals on Kaua‘i, like KVMH’s recent major upgrade in dentistry, as well as the July arrival of a new trauma surgeon from the New York Medical College of Queens. In cooperation with Wilcox, HHSC recently recruited a second dermatologist to the island, and recently opened a third medical clinic in Kalaheo.

In December, Mahelona won designation as a CAH, though that has led to problems in efforts to redesignate the hospital’s nine psychiatric beds, the only such beds on the island, to other uses.

“The service is obsolete, but the beds stay allotted,” Skomoroch said. In addition to losing precious bed space, Skomoroch has to spend money retraining the staff to work in other areas. She recently received a certificate of need for bed re-designation, however, a major step.

The success of the CAH program nationwide might become a victim of its own success, though, as experts say it might become the target of budget-cutters. In addition, starting in January, insurance companies contracting with Medicare Advantage do not have to adhere to the 101-percent reimbursement rule that has been a cornerstone of the program. Furthermore, those that do not contract with Medicare Advantage are still under no obligation to do business with CAHs, and could decide to ignore them altogether in search of contracts with lower reimbursement rates. Currently, according to hospitalconnect.com, there is no appeal mechanism.

Skomoroch has been receiving support from local representatives, but major changes are unlikely until the state Legislature’s 2007 session, when HHSC will again request procurement exemption and more money.

With that, Skomoroch hopes to introduce dental anesthesia, continue to offer cooperative services with Wilcox, and build up KVMH’s operating and emergency rooms. At Mahelona, she hopes to reopen acute services and bring in solar power. She envisions a time when everything Kauaians need is available on Kaua‘i.

“We want to ensure that doctors have a place to practice and patients have a place to go,” she said. “It’s not fair when someone says ‘you don’t deserve it, Kaua‘i, because you can get on a plane and go to O‘ahu.’”


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