Hawaii Pacific Health and Hawaii Medical Service Association said they will continue negotiations today over what the health insurer should pay the hospital system for the care it provides for as many as 400,000 HMSA members each year.

The state’s two health care giants met yesterday to discuss a new contract that includes a pay-for-performance reimbursement model that would be implemented for the first time at HPH facilities statewide, including Straub Clinic & Hospital, Kapiolani Medical Center for Women & Children, Pali Momi Medical Center and Wilcox Memorial Hospital on Kauai.

The public dispute comes as the industry begins to shift the way reimbursements are calculated to a model that focuses on quality outcomes rather than volume.

"It’s all about money and nothing other than money," said Chuck Sted, HPH president and chief executive officer. "The good thing … is we’ve come to an agreement on how to measure quality."

HMSA has offered to pay HPH an 85 percent base rate, with a 15 percent bonus if providers can demonstrate that they’ve improved the quality of patient care with measures that include decreasing hospital re-admission rates, as well as reducing unnecessary emergency visits and tests.

The model, which both have agreed to in concept, is expected to lower medical costs. However, HPH says those efforts require significant upfront investment for technology, increased staffing and outreach to patients and that a higher base rate is therefore necessary.

The gap that needs to be resolved in the three-year contract is 3 percent, which amounts to $1.48 per HMSA member per month for the next three years, or 1.4 percent of HMSA premiums, according to HPH.

"The bottom line is we’re stuck on dollars," Sted said. "We want an increase on a new base rate for medical inflation — HMSA is not willing to do that."

If a new contract isn’t resolved this week, HPH, the state’s largest private hospital system, will notify HMSA on Monday of its intention to terminate its participating provider contract after it expires Jan. 31, though negotiations are expected to continue at least until the current contract expires.

The notification is part of a requirement in its current contract with HMSA, which prematurely released the information to its 691,000 members on its website earlier this month to the surprise of hospital executives, according to HPH.

"Negotiations are continuing, and we remain committed to reaching a fair and equitable settlement that balances the need to reimburse hospitals fairly with our responsibility to our employer groups and members to provide quality, affordable health care," said HMSA spokeswoman Elisa Yadao. "With regard to our notification to potentially impacted members, this was the prudent thing to do given that fact that there are employer groups currently in open enrollment for next year."

Meanwhile, the Queen’s Medical Center also is trying to work out the kinks in a new pay-for-performance model. The hospital and HMSA agreed to a one-year extension of an existing contract through March.

What is negotiated between HPH and HMSA will set the precedent for future negotiations with other health care providers.

"There’s a lot of uncertainty in the market," said Rick Keene, chief financial officer of The Queen’s Health Systems. "At the end of the day, we’re all trying to position ourselves to provide high-quality care. We’re just hoping and really expecting that they will reach an agreement that’s acceptable to both of them."

Physicians have complained for years that HMSA has steadily reduced reimbursements that do not cover the cost of care, though doctors have had to continue in HMSA’s participating provider network to keep patients.

HMSA paid Big Island surgeon Alistair Bairos $1,207 in 1995 for a gallbladder operation that cost $2,625. In 2006 the same procedure cost $2,835, of which HMSA paid $728, he said.

"That’s why so many doctors have literally gone out of business in the last 10 years, because they just couldn’t earn enough from HMSA and Medicare to keep their offices open," said Bairos, care redesign manager of the Hawaii Island Beacon project, which aims to improve medical services through technology and redesign the way doctors and patients interact. "Reimbursements just didn’t keep pace with the cost of delivering care."