The state’s public hospital system has selected Kaiser Permanente to operate and manage three Maui County hospitals.

The Hawaii Health Systems Corp.’s Maui regional system board said Wednesday that Kaiser will negotiate with Gov. David Ige to assume control of Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital.

Kaiser, the state’s largest health maintenance organization, beat out Hawaii Pacific Health — parent company of Kapiolani Medical Center for Women and Children, Pali Momi Medical Center, Straub Clinic & Hospital and Wilcox Health on Kauai. Hawaii Pacific Health was the original bidder and main advocate for legislation allowing for privatization of the struggling public hospitals.

Kaiser, both a medical provider and health insurance company, has said it is committed to keeping the Maui hospital network open to the entire Maui community, not just its members, and would accept patients with other health plans, including rival Hawaii Medical Service Association.

“This will be a new model for Kaiser. They have nothing in their Kaiser Permanente system similar to how this hospital will be operated,” said Avery Chumbley, chairman of HHSC’s Maui regional board. “(Non-Kaiser doctors) will continue to have hospital privileges. What I believe you will have will be Kaiser doctors, hospital doctors and independent doctors all working side by side. It’s absolutely unusual.”

Lt. Gov. Shan Tsutsui, a Maui resident and former state senator, was not pleased with the decision.

“I was shocked because for close to a year now the Maui regional board and many of the executives at the hospital would tell me how great of a partner HPH would be,” Tsutsui said. “The governor intervened in the eleventh hour and said, ‘Stop, we need to put this process in place,’ … which allowed Kaiser to show re-interest in being the provider or managing the hospital on Maui.

“(What) I thought was very bizarre is you would have two applicants respond (and) they would choose someone to negotiate with,” said Tsutsui. “It seems odd that you would do it that way. I would think the best way to get leverage or get the best possible partner is to negotiate with both parties. They’re eliminating a potential partner at the very beginning, which alarms me a little.”

A spokeswoman for the governor said Ige didn’t have anything to do with the selection of Kaiser. Ige said in a statement he supports the decision made by the Maui regional board, “which spent months in an intensive, competitive process to examine the best options for quality health care for the people of Maui County.”

The governor signed a bill in June authorizing the transfer of the Maui region operations to a private entity and allowing him to negotiate the final deal.

The United Public Workers and the Hawaii Government Employees Association unions opposed the bill, saying they were concerned a private operator may cut staff and reduce pay and benefits.

“Now that a private operator is selected, HGEA will continue to advocate for our more than 800 members in the HHSC Maui Region during this time of great uncertainty,” said HGEA Executive Director Randy Perreira, in a statement. “As is our responsibility, we will remain a strong watchdog to ensure employees are being treated fairly and that contract terms are being upheld.”

DESPITE TSUTSUI’S work for years on a privatization bill in the Legislature, he said he was kept out of the loop in the selection process.

“I don’t know much about Kaiser’s proposals. I imagine all the other residents of Maui County, they must know even less,” Tsutsui added. “This is where Maui County residents go for all their health care needs so yes, I wanted to be part of this process. I’m concerned that the public probably won’t have ample information as to why all of a sudden there was a reverse in course and why the governor’s office now believes Kaiser is a better partner. I would just like to see a little more transparency.”

Financial details of the deal, including the amount of state funds that will support the hospitals annually, must still be negotiated.

The state now pays about $100 million per year to support the hospital network operated by HHSC, including the Maui and Lanai facilities.

“There is no hard exact dollar at this moment,” Chumbley said. “At some point the goal is to eliminate that subsidy. In the final selection, we felt the proposal as outlined by Kaiser had a better strategy aligned to our community.”

The Maui region is facing a $28 million deficit for the current fiscal year.

“We have a responsibility to meet the health care needs of our community, and we believe this transition provides us the greatest path forward to continue doing this,” said Wesley Lo, CEO of HHSC’s Maui region, in a news release.

Kaiser currently has more than 243,000 members in Hawaii, including more than 55,000 on Maui. The Maui Region of HHSC admits more than 11,000 patients a year and sees 45,000 in the emergency room. It employs more than 1,500 people, who will continue with Kaiser, HHSC said.

“We want to thank the community groups, health providers, local businesses, and the Maui Memorial Medical Center physicians and staff who have worked alongside us for 46 years with a shared commitment to providing quality, affordable care on Maui,” Kaiser said in a statement. “We look forward to our continued collaboration to ensure a healthy future for the Maui region.”

THIS IS NOT the first time Maui Memorial has sought privatization. In 2012 the hospital began talks with Phoenix-based Banner Health on a public-private partnership. The talks ended when the participants failed to win approval for the move from the state Legislature.

Ray Vara, president and CEO of Hawaii Pacific Health, said in a statement, “While we are disappointed in the decision, we believe that our involvement working with the region over the past year and throughout the legislative process has directly resulted in the opportunity for improved health care on Maui. This has always been our primary goal and we are hopeful that the people of Maui will benefit from this public-private partnership.”

HHSC expects to have a definitive contract and lease agreement by year’s end.

Tsutsui hopes the governor will reconsider limiting negotiations to a particular group.

“I’m not convinced of (Kaiser’s) level of commitment,” Tsutsui said. “I would hope that if, at the end of the day, we don’t believe there’s an adequate proposal or suitable partner, that we consider all options including having the governor provide emergency appropriations to the hospitals to allow them to continue to provide the same level of services they currently do for another fiscal year until we can find an adequate partner.”