A University of Hawaii task force charged with reviewing operations at the financially struggling UH Cancer Center says a "flawed and incomplete" business model is preventing the center from achieving its mission to reduce the burden of cancer through research and education.
The center, a research unit of UH-Manoa, needs a new business plan that moves away from state funding, the group said in a 124-page report released Monday.
The center ended last year with a nearly $10 million deficit and is draining its reserves at an "alarming rate," according to the report. It’s projected to run out of funds in about 21⁄2 years.
University officials have said the center is struggling because of an outdated business plan that assumed UH’s share of the state cigarette tax would remain steady at close to $20 million a year to fund operations at the center — a plan the task group called "too optimistic" and unrealistic.
As fewer people smoke, cigarette tax revenues have declined annually while competitive federal research grants into the center have been flat. Meanwhile, the recent expansion of the center’s Kakaako facility has saddled the center with an $8 million annual mortgage payment that it can’t afford.
"Requesting additional state funding would be ill-advised, and it further complicates rather than solves the problem," the report’s authors wrote. "It will continue the center’s reliance on the state and hinder its ability to explore and develop avenues for becoming self-supporting through grants, clinical trials or substantial corporate/philanthropic support."
Because UH does not have a university hospital, the Cancer Center does not enjoy revenues from clinical trials like other centers on the mainland. The center’s former director, Michele Carbone, helped create a partnership with private hospitals to form the Hawaii Cancer Consortium with the Queen’s Medical Center, Hawaii Pacific Health and Kuakini Health System to conduct trials based on UH research.
"The modest support from the Consortium, while appreciated and essential, is simply not enough," the report said. "Future business models must be tied to clinical participation and patient care in hospitals and community centers across Hawaii — with a focus on building independent clinical trial sites associated with the University of Hawaii."
While UH-Manoa officials say they’re optimistic the center can become profitable again, at least one key lawmaker remains skeptical.
"The bottom line is, you can budget, you can cut staff, you can do whatever you want, but this Cancer Center is just not going to survive," said state Rep. Isaac Choy, chairman of the House Higher Education Committee.
Manoa Chancellor Robert Bley-Vroman said the report is advisory in nature and not an action plan. He said the university is deciding how to proceed, but he expects a revised business plan to be completed by late March.
The Cancer Center is one of 68 National Cancer Institute-designated centers in the country, which gives UH access to about 80 percent of the federal agency’s $4.8 billion annual budget for federal research.
"That’s a lot of money that we would not have good access to without being an NCI center, so we really need to have access to that research money," Bley-Vroman said in an interview. "We have that designation now, and we really want to keep that, so that means building a strong center."
He said the center needs relief from the debt service on its Kakaako building.
"The idea is if you could somehow figure out a way that the people running the center didn’t have to worry about paying for the building they’re in, then I think we could come up with a reasonably realistic business plan," he said. "Without that, the fact is, it really is difficult to see how we’re going to move forward."
Ideas floating at the Legislature include expanding the cigarette tax to cover additional nicotine products to generate more revenue and converting the Kakaako mortgage from a revenue bond debt to state-backed general obligation bonds.
Another plan would allow the center to tap into the state’s tobacco master settlement agreement. Under the 1998 class-action settlement with the tobacco industry, Hawaii is one of more than 40 states that will receive payments in perpetuity from an endowment.
Ten cancer centers on the mainland receive subsidies from their states’ shares of the settlement.
But Choy, a certified public accountant, says he isn’t interested in proposals to increase state funding to the center. He’s introduced legislation that would require UH to study the feasibility of selling or leasing the $100 million Kakaako building, which opened in early 2013.
"I’m asking the university to start looking for offers to sell the building, look at lease-back options, all the different options to reduce that debt," he said. "They need to move on that piece quickly."
Choy (D, Manoa-Moiliili) said he agrees with the task group’s conclusion that relying on state support for the center is unsustainable.
"I am not going to entertain rearranging the deck chairs. This is a sinking ship and they must plug the hole," he said. "They’ve got to address the problem, the deficit. Getting a larger share of tobacco taxes or an allocation of the master settlement is not something I will entertain."
When Bley-Vroman was tapped over the summer to serve as interim chancellor, he agreed to prioritize an "objective" review of the Cancer Center, where infighting between a group of faculty researchers and Carbone over his leadership style made headlines over the past year.
Carbone, a mesothelioma expert who led the center since 2008, resigned in November to focus on his research.
Some researchers blame the controversial former director for allegedly mismanaging funds. The flawed business plan was adopted under his leadership.
"The (Cancer Center) operated successfully for several decades on a modest budget with a modest number of faculty members, who maintained a high level of grant funding," the report said. "Over the last 10 years, and especially since the construction of the new building at Kakaako, the center’s budget ballooned as the level of grant funding per faculty member decreased. In addition, management of the center deteriorated into a system that was not transparent."
The center, the report said, will need improved leadership and a return to faculty governance to succeed.
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On the net:
» To view the University of Hawaii task force report, go to bit.ly/1HPTOD1.
