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Friday, February 2, 2001

Losses put isle
health industry
on critical list

A study says hospitals and
nursing facilities could be $1.9
billion in the hole by 2002

By Helen Altonn

Hawaii's hospitals and nursing facilities can expect an estimated $1.9 billion operating loss for the period 1998 to 2002 if current trends continue.

This dire picture of the reputed "health state" is presented by Ernst & Young. The accounting firm was retained by the Healthcare Association of Hawaii in 1999 for a five-year study.

"There is no way the industry can absorb close to a $2 billion loss over five years and still function as it used to," said Richard E. Meiers, the association's president and chief executive officer.

That's the total loss estimated by Ernst & Young from 1998 to 2002 if no changes are made to state and federal payments to health care providers.

The association's 40 member hospitals and long-term care facilities across the state lost about $402 million in 1999, according to the study. The accountants' findings are based on confirmed cost figures for the first two years of the study and estimates for the last three years, Meiers said.

"If we do get some more money paying providers, the last three years of the study could go down. It might not be $1.9 billion, but if things continue at present..."

Key reasons: Uncompensated costs for community health programs and medical education, charity care and bad debt, and Medicare and Medicaid payments that don't cover actual costs of caring for patients.

Most facilities have used up investments and are cutting services, Meiers said in a Star-Bulletin interview. Once services are cut, he said, "the facility itself is going to be in danger. That's what we're telling legislators."

The association is urging passage of a Medicaid omnibus bill, now moving through the Legislature, that would set payments at a level that would at least cover the actual costs of care for the poor, aged and disabled.

"We're not asking for one extra cent of money," Meiers said. "We're just asking the state to pay their bills -- what they owe us."

Meiers also is working with other state association executives and the American Hospital Association to increase federal reimbursements.

Dr. Philip Hellreich, Hawaii Medical Association president, said, "Some of the hospitals are on the verge of becoming bankrupt if we don't correct the situation."

Physicians also are in trouble because government and insurance programs don't cover their actual costs of care, he said. "That remains a major goal this year."

Although the state Legislature enacted a prompt-payment law, some insurance carriers still are telling physicians they need more membership or secondary insurance information, Hellreich said.

The HMA is asking the Legislature to amend the law to require prompt payment if the information is sufficient to verify the patient was seen, he said. It also is seeking higher workers' compensation fees to cope with escalating costs.

The 1997 federal Balanced Budget Act has already cost Hawaii hospital and nursing facilities more than $142 million because reimbursements don't cover costs, Meiers said, and they will receive only $8 million from a relief measure.

Hospitals for several years have been exploring mergers and consolidations to deal with their fiscal plight.

Kapiolani Health, Straub Clinic & Hospital and Kauai's Wilcox Health Systems are the latest to agree to a merger, under a parent company called Hawaii Pacific Health.

Rep. Dennis Arakaki (D, Kamehameha Heights-Kalihi Valley), chairman of the House Health Committee, said he would like to see health-care facilities "get paid what they should be."

He believes a lot of shortfalls are due to the state's QUEST health care program, which sets caps on costs, enrollment and access to care.

Arakaki will be looking into the QUEST program and said he will support an increase in the Medicaid and QUEST eligibility rate from 100 percent of the federal poverty level to 300 percent.

Health insurance companies also are having problems.

The Hawaii Medical Service Association, the state's largest health carrier, reported losses of $17 million last year and $30 million the year before.

This year won't be any better, said Cliff Cisco, HMSA senior vice president.

"The cost trends continue to increase and operating losses are anticipated," he said. Inflationary drug costs and increased use of health benefits by Hawaii's aging population are driving the situation, Cisco said.

He said HMSA is covering the losses from reserves built up from dues and investment income.

The Queen's Medical Center lost $11.9 million in 1999-2000 and it has a $6.6 million deficit so far this fiscal year, said spokesperson Gail Tiwanak.

Queen's in the past few years has eliminated hundreds of positions and closed its cardiac rehabilitation center and Sick Child Care Program, among other actions, to pare costs.

It planned to close its dental clinic -- which is losing $350,000 a year -- but the state has offered temporary help to keep it open because it's the only one in the state serving the poor and disabled.

St. Francis Medical Center also is experiencing financial losses, said spokeswoman Maggie Jarrett. She declined to disclose the amount.

St. Francis has a four-month contract with ProCare, the Alabama-based consulting firm that works exclusively with health-care organizations, she said. The efficiency experts are looking at the entire system to recommend possible restructuring and other cost-savings measures.

At Kaiser Permanente, Bruce Behnke, Hawaii Region president, said, "We always worry about fiscal liability and fiscal responsibility, but we anticipate we will finish the year in the black."

Facts and figures

Findings of an Ernst & Young Hawaii health care industry study for 1998 and 1999:

Bullet Hospitals and nursing facilities lost more than $70 million in charity care and bad debt in 1999 -- up from $52 million in 1998.

Bullet Hospitals provided $20 million -- an increase of 25 percent in two years -- for alcohol and drug treatment, health fairs, adolescent and school health services and other community programs.

Bullet Hospitals provided $15 million more than Medicare reimbursed for medical education costs.

Bullet Hospitals incurred a $370 deficit per discharge because of low Medicare reimbursements, for a total annual deficit of about $30 million in payments.

Bullet The 1997 federal Balanced Budget Act has resulted in a $142 million loss for Hawaii health care providers.

Bullet Providers will lose about $6 million annually in state and federal funds under a state Department of Human Services proposal to reduce Medicaid payments in 2002-2003.

Bullet Medicare payments to mainland hospitals and facilities are 37 percent higher than in Hawaii despite considerably higher costs of care in the islands.

Bullet The federal matching rate for state Medicaid payments is 53.1 percent, meaning providers bear a higher burden of under-payments.

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