HONOLULU (HawaiiNewsNow) - The state is in discussions with an Arizona nonprofit hospital chain that's interested in taking over operations of eight public hospitals on Maui and the Big Island, Hawaii News Now learned Friday. It's a development that could have major implications for medical care for tens of thousands of neighbor island residents and affect the employment of thousands of hospital employees.
Sources said the Phoenix-based nonprofit Banner Health has made an "initial conceptual offer" to the state to take over operations, including Maui Memorial Medical Center, Hilo Medical Center and Kona Community Hospital. Other hospitals whose operations could be transferred to Banner from the state are in Kau, Kohala, Hamakua, Kula and on the island of Lanai.
Banner Health owns 23 acute-care hospitals in seven states with more than 26,000 employees.
Sources said under the deal proposed by Banner, the company would not pay the state any rent for the hospital facilities and the state would guarantee an annual management fee to Banner.
The head of the Hawaii Health Systems Corporation board that runs public hospitals in Hawaii said it's very early in the process, like deciding whether to ask someone out on a date.
"Once each party says 'Yes, let's go out on a date, then possibly we would move to a next step, which would be a memorandum of understanding," said Avery Chumbley, chairman of the HHSC board. There would be two more steps after that, Chumbley said, including a letter of intent and more detailed agreement.
"We are in serious discussions but we are early in the process. We do not have an agreement that's been established," said Bill Byron, vice president for communications at Banner Health, in a phone interview from the company's Phoenix headquarters.
"I believe in the end, that we would have an improvement in the quality and clinical care," Chumbley said.
Chumbley said the deal must also be good for taxpayers, who subsidize annual operations at all 14 public hospitals statewide by about $82 million a year.
Officials said under its initial offer, Banner wanted to continue receiving the eight hospitals' share of subsidies from the state -- worth tens of millions -- for the first few years and transition to no subsidy after about seven or eight years.
"HHSC has had a very large subsidy and I think it's good for us to look at ways to address whether we can control that subsidy or not," said State Sen. Josh Green (D- Kona, Kohala), a medical doctor who chairs the State Senate Health Committee.
"Their proposal is going to have to be vetted through the legislature and certainly the health committee is going to take it very seriously," Green said.
More than 3,000 unionized employees work at the eight hospitals that could be transferred to Banner Health and some lawmakers are concerned about job losses in communities where the facilities are often the largest employers.
"If Banner would come in, they would lay off people and hire whoever they wanted to at whatever cost, the cheapest cost, because, obviously, they wouldn't have to pay the benefits that HGEA and UPW would offer," said State Rep. Dee Morikawa (D - Poipu, Koloa, Niihau), the vice chair of the State House health committee.
Morikawa, a longtime member of the Hawaii Government Employees Association union, worked for 36 years for Kauai County, mostly in its parks department.
A Banner spokesman said unions will be part of their Hawaii operations in an otherwise non-union company, if the deal goes forward.
"We view the unions as essential partners in this," said Byron, the Banner Health spokesman.
But the employees here would likely have to re-apply for their jobs with different salaries, benefits and work rules.
"Banner has made it very clear to us that they are not trying to bust the union. That they will work with us on the union issue," said Chumbley, who spent ten years in the state legislature representing Maui and Kauai as a Democrat.
The head of the public union that represents nearly 2,100 public hospital registered professional nurses, X-ray technicians, lab workers and other employees released a statement saying the prospect of Banner Health's takeover is "unsettling."
"Frankly, it is incomprehensible that the state would willingly relinquish neighbor island healthcare decisions to a mainland facility," said Randy Perreira, executive director of HGEA. "This proposal certainly wouldn't be in the best interest of our local communities and our state."
The United Public Workers union, which represents licensed practical nurses and other employees at the hospitals, sent the HHSC a letter asking the organization to "cease and desist" any negotiations with Banner Health, a source said.
HHSC's hospitals in Hawaii have much higher labor costs than most private hospitals. Public hospitals in Hawaii spend about 68 percent of their operating budgets on personnel, compared to most private hospitals where the percentage spent on labor is less than 50 percent, according to officials who've studied the hospital group's finances.
Privately, some state officials question whether the deal is good for taxpayers, since sources said Banner Health wants the state to take on hundreds of millions of dollars to cover vacation, sick leave, and retirement benefits of existing hospital employees.
A 2009 study by Stroudwater Associates for the Hawaii Health Systems Corporation said the hospitals could save $61.5 million a year by converting from a state government entity to a 501 (c)(3) nonprofit. The study said the hospitals would save $50.3 million by "replacing the existing retirement and paid time off benefits with a contemporary private sector benefit structure."
People familiar with the public hospitals' operations said it's impossible for them to make ends meet because public employee contracts don't give managers flexibility to staff the hospitals according to patient volume and state procurement law is cumbersome and slow, not allowing facility managers to respond quickly to changing market conditions.
State law would need to be changed in order to allow the HHSC to sell any of its facilities to a private entity, something lawmakers in the Democrat-dominated State Legislature would have to approve. A number of bills relating to the possible hospital takeover will be introduced at this year's legislative session that gets under way next week.
Morikawa, the Kauai state representative, said she's worried about a private entity taking over public hospitals because, "A state hospital is supposed to provide the safety net to people who cannot afford the medical service and they are not supposed to be making money off this service."
Green, the Big Island senator who's also an emergency room physician, said, "Anyone who comes into the state of Hawaii knows that it's implicit that their proposal takes care of all the services we're used to."