Hawaii hospitals
continue to lose money

Unfunded care will cost isle
hospitals $169 million this year

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By Lyn Danninger
ldanninger@starbulletin.com

Hawaii's hospitals and nursing homes continue to lose money, and losses are likely to grow without government relief, according to a new study conducted for the hospitals by accounting firm Ernst & Young.

The hospitals blame the losses largely on unfunded medical care, which includes bad debt, special programs, charity care and the cost of treating Medicare and Medicaid patients. For the 2002 fiscal year, unfunded care will cost the hospitals $169 million. As part of that, losses on bad debt and charity care for the hospitals rose from $86 million in 2001 to an estimated $91.7 million this year.

During 2000, the report said, total hospital expenses for the state exceeded revenues by $8 million.

One of the biggest problems for providers has been the impact of the federal Balanced Budget Act, which reduced Medicare and Medicaid reimbursements, said Rich Meiers, chief executive officer of the Healthcare Association of Hawaii, which represents the state's hospitals and nursing facilities.

For example, in 1998, the difference between cost of care during a hospital stay and payment received under Medicare was $370. In 2001, that difference rose to $2,886, Meiers said.

The hospitals also find themselves paying out of pocket for participating in such things as medical education and community programs. In 2002, the Hawaii hospitals paid a combined cost of $41.4 million, according the report.

For example, St. Francis Health Care System will have to come up with a way to cover a $700,000 drop expected in the amount Medicare pays for medical teaching programs, said Terry Long, St. Francis' chief financial officer.

With medical education a key component of Hawaii's hospitals, it's not something that could be eliminated to save money, Francis said.

"It's not in the best interest of us here in Hawaii. Many doctors here are within 10 or 15 years of retirement so we have to continue training," he said.

Already the hospital has had to make difficult decisions to cut a number of social safety net programs it once offered, such as the Women's Alcohol Treatment Center of Hawaii, the only such residential alcohol treatment facility for women in Hawaii, he said. "These are very tough decisions."

The growing number of state residents without medical insurance has also had a financial impact on the hospitals.

At the organization's St. Francis West facility, more people are seeking routine care in the emergency room, Long said.

"We've seen a tremendous growth in visits to the ER. Apart from the growth in the area, it's because of the economic situation. People get sick and go to the ER. Our volume has gone up so much there are times we can't accept ambulances," he said.

Long also notes that about 80 percent of the organization's patients are covered through government programs such as Medicare and Medicaid, areas where reimbursements do not keep pace with the cost of medical care.

"Because we have such a large portion of patients covered by Medicare and Medicaid, any changes in government reimbursement has a drastic effect," he said.

At Queen's Health System, it's much the same situation, said Rix Mauer, the system's chief financial officer.

"In 2002 we had about $23 million in uncompensated care at the medical center alone," he said. Last year, that number stood at about $19.7 million.

While there has been some relief from the federal government in a few areas, Mauer said overall the impact of losses over five to six years has mounted to about $43 million.

Likewise, on medical education costs, the difference between cost versus reimbursement is about $7 million to $9 million a year because of a variety of different physician medical residency programs, Mauer said.

Unfunded costs across Hawaii Pacific Health's various medical entities, including Kapiolani Medical Center, amounted to $26 million in 2001, said Chief Financial Officer Chuck Stead. Of that, the organization provided about $3 million in charity care, he said. Teaching program losses were about $4 million.

But by far, the biggest single shortfall for the hospital system came in the area of reimbursements for government programs such as Medicaid and Medicare, Stead said.

"Unreimbursed costs of government programs in 2001 were $17 million," he said. "That increased about 8 percent over the previous year."

Stead said the organization has taken a careful look at all its activities and is in the process of making decisions on which programs it can't afford to continue.

"We're just going to take a hard look at it. But that's only temporary. What has to happen is that the federal and state governments have to come to grips, step up to the plate and pay their fair share of costs," he said.

While hospitals were once able to look to private sector insurers to make up for losses on the government side, that's no longer the case, the Healthcare Association's Meiers said.

"Community health plans are also looking to reduce payments for services as they try to reduce premiums, so this is not only an issue of Medicare and Medicaid," he said.

Declining payments also don't include other hospital costs, such those related to the privacy of patient records, patient safety issues and nationwide issues such as the threat of bioterrorism.

"All of these costs will mean significantly more expenses in the future," Meiers said.