Funding shortfall could close public isle hospitals, officials warn

Hawaii’s public hospitals warned lawmakers Friday of significant cuts or, in the worst-case scenario, closures as early as next year if the state doesn’t release more funds for the troubled facilities.

Officials of the Hawaii Health Systems Corp., comprising 12 facilities and other affiliates, told Health Committee members that despite layoffs and other cost-cutting measures, the hospitals still estimate they will have a $30 million deficit in 2015.

Among the most dire is the Oahu region, which operates Leahi Hospital and Maluhia, both long-term care facilities that care for the state’s most vulnerable Medicaid population, many of whom have no other options, said Derek Aki­yo­shi, chief executive officer of the Oahu region.

"The people we serve are our residents, not patients, in that they call our buildings home," he told lawmakers. "Unlike the residents at private long-term care facilities, the vast majority of Oahu region’s residents are Medicaid recipients with literally nowhere to go."

The Oahu region, which will be out of cash by May and unable to make payroll, is appealing for $4.9 million in emergency funds to cover shortfalls primarily related to unfunded collective bargaining costs, Aki­yo­shi said.

Without an emergency appropriation, "ultimately, core long-term care services will have to be eliminated," he cautioned. "All of our service lines are money losers."

The region is working to cut costs and will end its adult day health program on Saturdays at Leahi in October, he added.

"By April 2015 one facility will likely close with the loss of approximately 138 beds of Medicaid patients," Aki­yo­shi said. "In addition, hospice, Medicare and private-pay individuals will also be displaced, impacting a total of approximately 150 to 164 residents who live in our buildings."

HHSC is in the process of eliminating more than 30 positions, mostly on Kauai, in the first round of cuts intended to offset the deficit this year. The facilities, which have minimal cash on hand and are continually behind in vendor payments, have 4,500 full- and part-time employees and said further reductions might occur later in the year.

"We still have to find $3 million to make payroll through fiscal 2015," said Scott McFarland, CEO of the Kauai region. "We have to be in a constant state of restructuring. We’ll have zero days’ cash on hand by the end of 2014. If there is one hiccup, we will not make payroll."

The Legislature cut the hospitals’ $150 million budget request to $102 million for the fiscal year that began July 1. The shortfall is projected to grow to around $70 million the following year.

The corporation originally estimated a $48 million shortfall for 2015, but identified ways to reduce the deficit to $21 million. But Gov. Neil Abercrombie restricted $9 million of HHSC’s funds due to lower revenue projections by the Council on Revenues, pushing the estimate up to $30.4 million, said HHSC acting President and CEO Alice Hall.

Part of HHSC’s financial problems stem from its facilities in rural communities that are unable to generate sufficient revenue to support operations.

The hospital group relies on state money for 15 to 20 percent of its annual $650 million budget, with the bulk of the money coming from patients and their insurers. Public funding through the general fund tripled to $120 million in 2014 from $35 million in 2004.

HHSC acts as a "safety net" for the state’s neediest population — many of the poor and chronically ill. Its aging facilities are in a unique situation with nearly all HHSC patients on Oahu — 92 percent — on Medicaid, which does not cover the entire cost of care, officials said.

The organization had lobbied the state for a number of years to partner with a private entity to rescue the hospitals. Earlier this year lawmakers explored the possibility for either a public-private partnership or the sale of some facilities to the private sector, but the bill stalled in the closing days of the session.

"Reform and restructuring of our state’s health care safety net, in this case HHSC, will be critical to prevent any loss of jobs or reduction of services," said Senate Health Committee chairman Josh Green, also an emergency room doctor at HHSC’s Kohala Hospital on Hawaii island. "A partnership with a local entity will likely be necessary in 2015 to maintain the safety net."

The public-benefit corporation’s fragmented regions are furiously trying to reduce expenses before resorting to service and staffing cuts that will affect patient care in their communities. In addition to layoffs, it hasn’t filled 137 positions to save $13.7 million, Hall said.

"We are at precarious levels right now. We are in somewhat of a broken model," said Wesley Lo, regional CEO of Maui Memorial Medical Center, which decided to close its adolescent behavioral health unit to save more than $1 million annually. The region also is continuing to talk with private entities on potential privatization of the hospitals. "We’re trying to do more with less. If we are not able to get additional moneys, we will be faced with some difficult decisions."