Wesley Lo

Wesley Lo is Maui region chief executive officer for the state’s Hawaii Health Systems Corp. and believes an agreement that his region has been negotiating with a potential private partner, Hawaii Pacific Health, could be a model for statewide application.

But the public hospitals system executive also acknowledges that Maui has had a substantial head start down this path. The health care system on that island has been mobilizing for reforms to its system for years. And while it’s been a frustrating process of starts and stops, Lo said there’s broad agreement that finding a way to expand care and make it more sustainable is an imperative.

Health care is the "foundation of a community," he said, adding that Obamacare adds further demands that small hospitals lack the investment capital to meet.

"You need to cross the chasm to the new world," he said. "Unless you have the resources, both financial and intellectual to get there, the world passes you by. We need to change, we need to adapt."

Lo, 55, is Honolulu-born but has put down roots in Maui, where the younger of his two children is in public school and his wife is a Maui High School counselor. The Punahou School graduate earned his finance degree from the University of Colorado. He found his way to Maui Memorial Medical Center, where he first was chief financial officer, after four years as finance director for Maui Mayor James "Kimo" Apana.

Maui Memorial is one of 12 hospitals and clinics in the financially ailing public hospitals system; HHSC’s latest shortfall was estimated at $48 million.

Lo’s current focus is Senate Bill 795, which would be the vehicle for a partnership with HPH. While the terms are still in flux, he said, the aim would be to employ staff under private-sector standards. In many cases this is higher wages but fewer days off and benefits reductions, such as converting pensions to 401(k) packages. This will take a lot more discussion with the Hawaii Government Employees Association and United Public Workers labor unions, he said.

"We’re a people-driven business," Lo said. "We need our staff so badly. They’re the ones who deliver health care, not institutions.

"We want competitive, fair-market-value wages," he added. "Somebody (who’s) going to come in and not have competitive fair-market-value wages, game over for us. It doesn’t make sense."

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QUESTION: How did the partnership idea get started?

ANSWER: The first effort we started, it really wasn’t about a partnership. But it was, we knew the model wasn’t working. … Way back when, HHSC started, and Maui in those days was making money. The other hospitals weren’t, and there was this big commotion on Maui about starting another hospital …

It was clear that the community wanted more services — all communities want more services.

Q: What kind of services were they demanding? And what year are we talking about?

A: This was probably back in 2004. That’s when I first started at the hospital. … We could only do diagnostic heart things. We didn’t do hearts, so if you had a heart attack there, you would get lesser care, you would have to be flown (to Oahu) … We did provide good services. It’s just that they wanted more. And they wanted more than just the traditional county-hospital type of thing. …

We could see that over the years that unless you changed your model, you couldn’t really sustain it, and you needed to grow services. And the state really has so many things it has to do, it’s hard to grow services, hard to invest in services. …

We decided that we needed to start investing, and we needed to find different ways to get the money to invest and to grow services.

Q: And what were those?

A: In particular, it was the heart services. We wanted open-heart surgery and angioplasty, which is, really, for a community our size is standard care anyplace else in the nation. (Laughs.)

Q: So, where did you go for the money to get that started?

A: It was a two-step deal. The first year we went up and said, "Let’s go check the capital markets out. Let’s see if they’ll lend us money." … Frankly, in those days they were giving away money, prior to 2009, they were literally giving it away, before that whole Lehman Bros. stuff.

So we went up there and they said, "You know, we like your story, Maui, but we don’t know about the rest of HHSC and the state."

That actually started us thinking. They said, "If you guys could get it where we only lend money to the Maui region, or Maui Memorial … we’d consider it."

Q: Is that when the regions were separated?

A: The next year. It was for the right reason — I know we got criticized for it, too — but what we said is, "Well, if we create regions or corporations … then we’d at least have access to the capital markets." The state wasn’t going to give us the markets. The next year we actually created the regions.

Q: When did you finally secure the capital?

A: The first step was probably around 2008. we finally secured the first part of a $30 million loan. We got $11 million from the capital markets. … We started building the heart program, we had to hire a surgeon, get equipment … then the capital markets crashed. Oh, my goodness!

The bank, which will remain unnamed, said, "Oh, by the way, the rest of the money, you can’t have it and now you guys gotta pay us back." …

After 2009 … we started doing really well. Our revenue growth was great, and we were outpacing our expenses. By 2013, we almost were breaking even, as a state entity. We were hemorrhaging money before. It really worked.

But there were some other things that happened along the way. Another region had tried to borrow money and it didn’t go well. So the state precluded us from doing mortgages any more. … And I understand. It’s risky going out as a state entity to borrow money for yourself. …

We always said, "Wouldn’t it be better to have all the goodies that a large corporation has to help make you be all you can try to be, as opposed to being the biggest of a smaller one?" … We said, "What if we started looking for a partner?"

Q: That’s when Banner (Health system) came along?

A: No, that was before Banner, … in late 2008. … All the guys that were interested had pulled out, because everybody panicked, so we didn’t have any ability to partner then. But we had gotten legislation to at least allow us to look for partners. …

Then we kind of recovered. Then we said, "Let’s renew our efforts. The markets have kind of stabilized." Lo and behold, Banner shows up. Out of the blue, our investment banker says, "Wow, we think this would be a great mix." Banner is a huge system, has done well across several different states. …

They were extremely interested. They came down. And we were just looking at that time at the Maui region. We ended up meeting with the governor … and he said, "That’s great, but if you guys can do this better than the state can, why don’t you take the whole system?"

They said, "Yeah, we’d be interested in taking the whole system." It kind of changed the discussion for us. … I think part of the problem at that point was, the rest of the (public-hospitals) system wasn’t where we were. We’d been looking for years, where the other systems were, it was new, and it was probably ahead of its time. The system wasn’t all at the same place. I liken it to the first time a big-box store comes to a small community. There’s apprehension, and I think we just didn’t have enough time. … It never got off first base.

Q: How much of that was union

resistance?

A: There’s both. I think the issues that Banner had — and it wasn’t their fault — was, they were non-union on the mainland. Even though they said they’d be union here, we’ve always pushed that we believe that HGEA and UPW should be the unions, just in the private sector.

But certainly the unions saw that they’re (Banner) non-union, so there were certainly some issues around that.

And the other thing was, I think that the medical community, there’s mixed feelings about such a large company coming into town. … Banner is known to be very evidence-based, so they kind of tell you, "This is the evidence on how to practice medicine." … We were seeing a transition in the physicians, the younger ones were like this, but the older were "No, wait a minute. This is how I practice, and don’t tell me." So I think we had a little bit of both. …

Q: What was the community reaction?

A: I think that the community on Maui has just been wanting a private, outside operator, even preceding me. They felt that they definitely want as good health care as Maui can provide, and they felt that the big system, that would be the way to go.

So the community generally was supportive. But they were listening to employees and doctors and it was just so new, I think. And as I’ve learned how important communications is, it takes time to develop these things. … Legislation takes time. So that year it bombed.

The next year, we decided, "Let’s go and just get legislation, and a process so that everybody’s happy on how you would approve it," because then we can have all comers come in. …

We got the legislation through to conference (committee), and in the end it sort of unraveled. … The bill died, and I was just, "Where do we go now?" The situation kept on getting worse. … If you don’t grow revenues, how do you grow services? …

Q: In this last-ditch effort to put together a partnership with a local player, Hawaii Pacific Health, you’ve said labor would be based on private-sector practices. What does this mean?

A: Private-sector wages and benefits. I think in some categories, the wages, we would expect them to increase. In many categories. But … some of it is going to be the benefits. Instead of 56 days off a year, in the private sector they’re somewhere between 30 and 35 days off (including sick leave and holidays) …

They will not be state employees anymore but we are committed to work with HGEA and UPW, but in the private sector …

I don’t have any issue with the unions. The problem for hospitals in the state system is … you need work rules that accommodate a 24/7, census-driven operation.