The hope of a private entity rescuing the state’s troubled public hospital system was crushed after lawmakers shelved a privatization bill in a key committee Friday.

Instead, the Legislature granted Hawaii Health Systems Corp. $102 million for 2015. The organization had requested $150 million, leaving a $48 million shortfall mostly due to unfunded collective bargaining increases, said Alice Hall, HHSC’s acting president and chief executive officer.

The financially struggling 12-member system, which acts as the safety net for communities where medical care is lacking, had hoped for legislation to partner with or be purchased by a local nonprofit provider such as Hawaii Pacific Health, The Queen’s Health Systems or Kaiser Permanente Hawaii.

HHSC officials say it can no longer sustain the increasing costs of health care and continue providing the same level of services.

"The state can’t afford to come up with more and more money, and we can’t absorb these costs," Hall said. "We’re going to have to explore all plausible ideas on how to cut expenses, which may include cutting services and reductions in force. We believe all our services are essential, but we must examine all options in order to make up for the huge deficit that we’re anticipating for next year."

The public hospitals are particularly challenged this year with the rollout of the federal Affordable Care Act, which puts a greater demand on providers as patients increase due to more people gaining health insurance.

The organization is already under pressure because of lower reimbursements from many of its patients covered by government insurance programs, Medicare and Medicaid, and private insurers shifting payments from volume-based to quality-based, as well as new regulations.

HHSC’s facilities, some of which are more than a century old, also need an estimated $1 billion in capital improvements.

"We were really decimated on the budget. The cuts are so dramatic. We can’t make it through the year without making some dramatic changes," said Wesley Lo, regional CEO for Maui Memorial Medical Center. "The whole deal was either they’ve got to give us lots of money or we’ve got to get the ability to partner with somebody, but we got neither. It’s pretty bad. We’re hoping we don’t affect patient care, but the cuts are going to be so much."

The organization is looking to improve efficiency and negotiate with labor unions to see if there are ways to come up with savings in workplace rules and practices, Hall said.

"The way our system is set up right now is not sustainable," she said, adding that HHSC will ask for an emergency appropriation for 2015. "We did come up with what we think is the best solution, but then it died at the last minute. These are major changes, and it takes a long time for people to be comfortable with major changes."

HHSC received a $15 million emergency appropriation for 2014 on top of a $7.3 million emergency appropriation last summer to continue operating the mostly rural facilities with 1,275 beds. State operating subsidies for 2014 totaled $119 million.

"We’re closer than ever to having a solution for HHSC. Over the last six months we crafted a bill that gets us on a road to a solution; however, not all of the major stakeholders were ready to take that first step," said Senate Health Committee Chairman Josh Green (D, Naalehu-Kailua-Kona), who introduced the privatization measure to begin the process of decreasing state subsidies and will sponsor it again next year. "We know HHSC will be back for emergency appropriations again — that’s one of primary motivations to solve this problem. We did build incredible consensus between hospitals, unions and the community. But Hawaii is slow to change."

Last year, lawmakers also killed legislation that would have allowed the privatization of eight public hospitals on Maui, Lanai and Hawaii island with Phoenix-based nonprofit Banner Health.

HHSC operates 12 facilities and four affiliates: Kahuku Medical Center, Roselani Place, Yukio Oku­­tsu State Veterans Home and Ali‘i Health Center.