DENNIS ODA / STAR-BULLETIN
Malia Amina-Panui celebrates the birth of her son with family
and friends at Kapiolani Medical Center. Kapiolani Health President
Roger Drue is in line to head the management team for a new
health system that would also include Straub Clinic &
Hospital and Wilcox Health System.

Hospitals claim
merger needed
to avoid cuts

Kapiolani Health, Straub Clinic
& Hospital and Wilcox Health
System want to join, creating
the state's largest health
care system

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By Lyn Danninger
Star-Bulletin

THE MERGER of three Hawaii Hospital systems will avoid cutbacks in medical services and potential layoffs, according a new state filing.

Without the merger, Kapiolani Health, Straub Clinic & Hospital and Kauai's Wilcox Health System say they would have to reduce unprofitable services, close clinics and cutback on personnel.

On Thursday the hospitals filed a certificate of need application with the state Health Planning and Development Agency requesting approval of the merger.

If approved, the merger creates the state's largest health care system.

The hospitals say the need for the merger is based on financial projections for the three organizations. According to the filing, projections indicate limits in capital would make it difficult for them to maintain and upgrade equipment, make necessary improvements and weather any unforeseen financial downturns.

Under the proposed merger, a parent holding company called Hawaii Pacific Health will oversee all three systems even though each would maintain individual identities.

The merger of the three hospital systems would mean a full- and part-time work force of 5,360, including physicians. By comparison, the state's current largest health care provider, Queen's Health Care System, with all of its subsidiaries, employees 4,571 full- and part-time workers.

The make-up of Hawaii Pacific Health's board of trustees, which would oversee the merged organization, is not clear from the application. Currently, Hawaii Pacific Health's officers and board of trustees are the same as those for Kapiolani Health.

But the filing indicates that upon approval and completion of the merger, a new board of trustees would replace the current board.

David Heywood, Kapiolani Health vice president for corporate development, said the new 15-member board for Hawaii Pacific Health would be made up of representatives from Straub, Wilcox and Kapiolani, physicians and the community.

Kapiolani Health President and CEO Roger Drue would head the management team for the new organization, Heywood said.

For all three entities, the proposed merger helps solve lingering financial problems and reduce operating losses.

For instance, in merging debts and assets with Hawaii Pacific Health, the new corporation will pay $5 million to settle the remains of Straub's previous management agreement with PhyCor Inc. of Nashville, Tenn. Straub last year paid $30 million to sever its relationship with the financially struggling PhyCor.

For Wilcox, the merger will mean the new corporation pays $2.2 million to end an affiliation agreement with Queen's Health Care Systems.

The certificate of need application also says there are no anticipated or planned changes to patient care staffing levels. But it did indicate the new organization would seek efficiencies of scale and cut down on duplication of services wherever possible.

"If operations need to be streamlined, it would be through attrition. We're not anticipating any layoffs," said Lani Yukimura, director of marketing and communication for Wilcox Health System.

Not everyone is enthusiastic about the proposed merger. Nurses on Kauai have been worried what the move would mean to the hospital. They fear that health care decision-making could be taken away from Kauai.

Concerns were also raised that the merger would mean job cuts, especially in areas where all three hospitals duplicate services. Several months ago, the Hawaii Nurses Association ran a newspaper advertisement questioning whether the merger would be in the best interests of those who live on Kauai.

The Wilcox system, made up of the hospital and Kauai Medical Clinic, serves around 75 percent of Kauai's residents.

Certificate of need applications are reviewed by the state according to criteria including the relationship to the Hawaii Health Performance Plan, which is the state's plan to improve community health, promote early health care intervention and ensure access to quality health services at a reasonable cost for the state's residents.

Projected finances without merger Wilcox Health System Year 1: Operating loss of $5.13 million Year 2: Operating loss of $5.13 million Year 3: Operating loss of $5.2 million Straub Clinic & Hospital Year 1: Operating gain of $1.42 million Year 2: Operating loss of $940,000 Year 3: Operating loss of $270,000 Projected finances with merger Wilcox Health System Year 1: Operating loss of $5.08 million Year 2: Operating loss of $2.92 million Year 3: Operating loss of $720,000 Straub Clinic & Hospital Year 1: Operating gain of $3.46 million Year 2: Operating gain of $6.01 million Year 3: Operating gain of $12.78 million >> Figures for Kapiolani Health were not filed. Source: State certificate of need filings