The agency is accused of
mismanaging funds and boosting
the cost of the state's subsidy
The state Senate Ways and Means Committee has issued a harsh indictment of the semiprivate management agency that operates the state's community hospitals, but it also held out an olive branch to work with officials to remedy the problems.
The five pages of criticism of the Hawaii Health Systems Corp. is in the committee's 23-page report on the Senate's version of the $3.6 billion state supplemental budget bill approved by the full Senate on Friday and forwarded to a House-Senate conference committee.
The Hawaii Health Systems Corp. was created in 1996 to operate 12 public hospitals and health facilities, primarily on the neighbor islands, and is subsidized by the state.
Despite Gov. Linda Lingle's criticism that it resulted in an unbalanced two-year budget, the Legislature last year only approved the requested $31.2 million general fund subsidy for the first year, saying it was not satisfied with Hawaii Health Systems' answers about why the money was needed, the committee said.
"In effect, this forced the HHSC to return during the 2004 legislative session and, quite simply, provide better answers -- answers that the Legislature and the general public deserve," it said.
The agency's original request for the coming fiscal year was for a $44.6 million subsidy, but the governor reduced it to $31.2 million, the committee said.
"Your committee finds it curious that while the governor has accused the Legislature of underbudgeting the HHSC, the governor herself, at least by HHSC's account, has apparently shortchanged them by at least $13.4 million," it said.
The lawmakers charged that Hawaii Health Systems paid high-priced independent contractors for services that lower-paid employees also perform, driving up the cost of the state's subsidy.
They also cited state Auditor Marion Higa's finding that Hawaii Health Systems' lenient policies "and lack of oversight in facilitating discretionary contracts led to abuses and millions of dollars awarded in nonbid contracts."
The committee questioned why Hawaii Health Systems' corporate office expenses increased from $7.9 million in 1999 to nearly $13 million in 2004 and administration salaries to $5.7 million from $2.8 million in the same period while it was raising concerns over a reduction in the state subsidy.
Despite its criticism, the committee included the full subsidy in the budget, which Hawaii Health Systems spokesman Miles Takaaze said the agency appreciates.
"We have already begun the process of responding to remaining issues with both the House and Senate members, and we are hopeful that our request for $31.2 million will be realized," he said.
The committee noted that the semiprivate agency was created to free the hospital facilities "from unwarranted bureaucratic oversight" but was never given complete autonomy.
"While the HHSC was granted administrative flexibility and many generous management tools, certain state laws handcuffed the HHSC from gaining full fiscal autonomy and impeded its ability to attain long-term solvency," it said. "Today the HHSC still continues to be affected by mandates such as collective bargaining for certain employees and restrictive personnel rules."
If things are not changed, the state has to accept the fact that annual subsidies will exceed $40 million, it said.