According to the American Hospital Association, Hawaii is one of only two states where hospitals operate at a loss year after year. One key reason is the high cost of treatment versus low reimbursement to care for Medicaid patients. Hawaii’s hospitals are typically dependent on their associated foundations and philanthropy to offset operating losses. Pressure has continued to mount during the recession with two recent hospital closures in Hawaii.

Under the Affordable Care Act, the state is entitled to $10 million in federal Medicaid Disproportionate Share Hospital funds. However, to secure those dollars, states must provide matching funds. Insufficient general funds in the state coffers have made it problematic to match the available federal dollars.

The recent legislative session passed two bills to solve this issue and support sustainable health care in Hawaii.

Raised through a collaborative effort by local hospitals, nursing homes, the Healthcare Association of Hawaii and other community stakeholders, House Bill 2275 delivers $21.5 million in new federal funding for private hospitals. Public hospitals will also benefit because they will retain certified public expenditures, or CPEs, which had been previously directed to private hospitals. These CPEs can then be used to generate $17.5 million in matching federal funds for use by public hospitals or Medicaid programs. The result is that the state of Hawaii can save $17.5 million in general fund appropriations.

This is made possible by a 7 percent "set-aside" of revenues from private hospitals that will be allocated to the state. From that 7 percent, $800,000 must be used for Medicaid-covered services to benefit public and private hospitals. A total of $2.8 million of these funds will be given to the Department of Human Services, which will receive full federal matching.

The end result of this workaround is that hospitals will receive reimbursement for Medicaid services that covers 83 percent of total costs, up from 70 percent. The national average sits at 89 percent.

Senate Bill 2466 takes the same strategy to bring in an additional $9.5 million of federal funds for private nursing facilities. The set-aside is 12 percent for active, long-term care facilities (rather than 7 percent for hospitals). Under this initiative DHS will receive $1.4 million. The $1.4 million in set-aside, when combined with DHS funds and the corresponding federal match, will offset the 3 percent reimbursement cut implemented in 2011.

The result is that Medicaid reimbursement for nursing facilities will roughly cover costs. Currently, long-term care facilities lose $10 per patient, per day.

Hawaii hospitals are still projected to lose $65 million or more per year treating Medicaid patients even if Gov. Neil Abercrombie signs these bills into law. Hawaii Medical Centers East and West have already closed, and more Hawaii hospitals are at risk. Most are feeling the pinch.

According to Sen. Josh Green, chairman of the state Senate Health Committee, "It is critical that we join the rest of the country and solve health care cost and access problems with new approaches like this."

Ira Zunin, M.D., M.P.H., M.B.A., is medical director of Manakai o Malama Integrative Healthcare Group and Rehabilitation Center and CEO of Global Advisory Services Inc. Please submit your questions to info@manakaiomalama.com.