Bankruptcy to close 2 hospitals on Oahu

HawaiiNewsNow: HMC closing to hit West Oahu especially hard »

Community leaders were working Friday on plans to revive the Hawaii Medical Center hospitals in Liliha and Ewa after the owners said they will shutter the bankrupt facilities within three weeks.

Closing the former St. Francis medical centers, which date back to the 1920s, will leave 990 workers unemployed and eliminate more than 340 hospital beds.

The loss will be felt throughout the health community. HMC provides critical dialysis services to a significant portion of Oahu’s renal patients and operates the only organ transplant center in the Pacific. The Ewa facility is the only full-service emergency hospital in West Oahu. The 150 patients in the two hospitals will have to be moved or discharged.

To prevent a public health emergency, the state administration is hopeful that buyers can be found to operate one or both of the facilities.

"Our understanding is there are still lingering interested parties," said Donalyn Dela Cruz, spokeswoman for Gov. Neil Abercrombie. "There are interested parties looking to reopen the facilities. If and when that occurs, the state will expedite that process."

Hawaii Pacific Health, which operates Kapiolani and Straub hospitals and previously expressed an interest in HMC, said "the closure of these facilities will have a huge impact on our community."

"We continue to stay in touch … to determine if we are able to play a role in the future of these facilities," said HPH CEO Chuck Sted.

The Queen’s Health Systems said it is monitoring HMC’s situation and the implications on health care in Hawaii.

"Queen’s takes this situation very seriously," said Art Ushijima, president and CEO. "We are also mindful of the transplant program there and of its importance to our community. If Hawaii Medical Center is not able to continue this vital program, we will take a strong look at seeing what Queen’s can do to preserve it for the people of Hawaii."

The situation appears dire for HMC’s employees since many Oahu health care facilities won’t likely be able to absorb the significant number of workers who will be left without jobs.

"I don’t think there’s any one health system here that could absorb all those workers," said HPH spokeswoman Shawn Nakamoto.

Bruce Anderson, president and CEO of the state community hospital system, known as Hawaii Health Systems Corp., said, "We’re certainly in no position to absorb that many health care workers, and I’m not sure any facilities have vacancies at this time that will allow them to absorb those workers, so we are very concerned about that situation."

In addition, there are few nursing positions open due to a temporary surplus resulting from people returning to the profession or holding off retirement during the recession. HMC’s hospitals combined employ 205 registered nurses.

"The problem is that these are people that support their families. They’re providing medical insurance — the primary breadwinner in many families is the RN," said Hawaii Nurses Association President Joan Craft. "It’s the holidays, Christmas — it’s not the time to be losing your job. More than ever it’s a hard time; it’s also hard that it’s a whole group of people in one profession."

HMC had a brief glimmer of hope in recent weeks that it could stave off a shutdown when an affiliate of California-based Prime Healthcare Services offered to pay a minimum of $25 million for the facilities. However, the deal fell apart this week because St. Francis, the former owner of the hospitals which is owed $39 million by the current owner, objected to the offer, according to Prime. Prime’s offer would have paid the Catholic religious order $11.3 million.

"The problem here was that St. Francis basically conveyed that they wouldn’t support a sale unless we paid (them) off," said Prime’s attorney Mark Bradshaw. "It’s clearly about money for St. Francis. Given that the hospitals are not worth $40 million, it didn’t make sense for anybody. We were basically discouraged from bidding."

Bradshaw, who was in Honolulu to negotiate the deal, said the California hospital operator was ready to bid more than the $25 million if a sales transaction had the support of all the parties.

"The potential buyer, Prime Healthcare, had presented a preliminary bid to purchase the hospitals," HMC CEO Maria Kostylo said in a statement. "However, because the intended offer was less than what was owed, St. Francis, our largest secured creditor, filed a motion earlier this week objecting to a potential sale."

Without an agreement between Prime and St. Francis, HMC said it had no choice but to close the hospitals. HMC asked the bankruptcy court Friday to let it withdraw its plan, and the court agreed.

"We regret having to make this decision and understand the impact it will have on our 990 employees just days before Christmas," Kostylo said.

Sister Agnelle Ching, CEO of St. Francis Healthcare System of Hawaii, said in a statement, "We respect Hawaii Medical Center’s decision to close its two hospitals. … St. Francis Healthcare System of Hawaii has offered to help Hawaii Medical Center’s wind down efforts."

Ching did not explain her objection to Prime’s offer.

HMC began having financial troubles years ago. The hospitals, which have historically provided services for the indigent and elderly, were never able to boost referrals for higher-priced procedures or increase the number of patients with commercial health insurance to offset the large population covered by Medicare and Medicaid, whose reimbursement rates are significantly lower.

Until late October, St. Francis was planning to resume control of the hospitals, but it backed out because of financial concerns.

The Franciscan sisters sold the hospitals in January 2007 for $68 million to HMC LLC, then a for-profit joint venture between Hawaii Physician Group LLC, composed of 130 local doctors, and Kansas-based Cardiovascular Hospitals of America. St. Francis provided the bulk of the financing — $40.2 million — for the sale.

HMC first filed for Chapter 11 bankruptcy protection in August 2008. It emerged in August 2010 and became a nonprofit organization governed by a nine-member board of directors before filing its second bankruptcy in June.

After a closure, the hospital buildings will revert to St. Francis, which would not disclose plans for the aging facilities.

"We are devastated by this outcome and its impact on patients, families, communities and most notably our employees, who have been loyal and supportive throughout this challenging process," Kostylo said.