State prepares in case HMC hospitals close

The state is preparing for a possible closure of the Hawaii Medical Centers after its main lender, St. Francis Healthcare System of Hawaii, abandoned a bankruptcy reorganization plan that would have returned the facilities to the Catholic religious order.

Hawaii’s attorney general asked the state public hospital system whether it could absorb patients if HMC were to close its facilities in Liliha and Ewa, said Bruce Anderson, president and CEO of the state community hospital system, known as Hawaii Health Systems Corp. A spokesman for the attorney general said the office is monitoring the situation.

"Everyone wants to be sure that if St. Francis closes it doesn’t compromise the health care system in Hawaii to the point (where) anyone’s health care is at risk," Anderson said. "No one wants people to be out on the streets without the health care they need. The bigger problem is what gaps will be left if St. Francis ceases to provide the services they have been for decades."

HMC, formerly known as St. Francis Medical Centers, said it notified government officials of the situation and is "developing a contingency plan that ensures the health and safety of our patients" while aggressively pursuing potential buyers. A bankruptcy hearing is scheduled for Nov. 7.

The money-losing hospitals, which have been funded by bankruptcy lender MidCap Financial since June, continue to operate, though it’s unclear how long the lender will fund operations.

"I don’t know whether they’re going to be able to sell it or not," Anderson said. "A number of hospital systems have looked at the situation and have declined to offer anything."

The state hospitals could absorb HMC’s patients, according to Anderson, since the 240-bed HMC East in Liliha only has about 30 patients and the 102-bed HMC West in Ewa had 60 as of Wednesday. The hospitals employ 990 people.

Most of Oahu’s medical centers are full to capacity.

"I guess people have been hesitant to refer patients (to HMC) given the fiscal situation and uncertainty of whether they are going to be getting the care they need," Anderson said.

In 2008 the state hospital system acquired the assets of bankrupt Kahuku Hospital and took over operations of the facility to avoid its closure. Anderson said it’s not likely the state would take over HMC in a similar fashion because, unlike Kahuku, there are other hospitals nearby that could serve HMC patients.

"I fear, unless some miracle happens, this thing is headed for liquidation and essentially meltdown," said David Farmer, a local bankruptcy trustee not affiliated with HMC’s bankruptcy. "Not only would it have to be a miracle; I just don’t see how the economics could ever work for anybody."

St. Francis told U.S. Bankruptcy Court Judge Robert Faris Wednesday the hospitals’ liabilities far exceed St. Francis’ financial resources.

"This was one of the most difficult decisions we’ve had to make," said Jerry Correa, St. Francis chief operating officer, referring to the decision to pull out of HMC’s bankruptcy reorganization. "We were all hoping for a better outcome, but taking on these financial responsibilities would put our current programs and services at risk."

HMC CEO Maria Kostylo notified employees of the situation in a memo issued Wednesday.

St. Francis sold its two medical centers in January 2007 for $68 million to HMC LLC, a joint venture between Hawaii Physician Group LLC, comprising local doctors, and Kansas-based Cardiovascular Hospitals of America.

HMC filed for Chapter 11 bankruptcy protection in June, less than a year after emerging from a previous bankruptcy. St. Francis provided the bulk of the financing for the sale — $40.2 million — and is HMC’s main creditor.

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