Experts: Nonprofit’s non-bid COVID contract was a lucrative ‘sweetheart deal’ that gouged taxpayers

They also say the city's airport testing program meant big profits for a local non-profit and its partners.
Published: Aug. 19, 2022 at 8:10 PM HST|Updated: Aug. 20, 2022 at 12:14 AM HST
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HONOLULU (HawaiiNewsNow) - COVID testing in Hawaii early in the pandemic was extremely lucrative for government contractors, experts say.

They also say the city’s airport testing program meant big profits for a local non-profit and its partners.

When former Honolulu Mayor Kirk Caldwell’s administration wanted to set up a mobile COVID testing lab at the Daniel K. Inouye International Airport two years ago, it awarded a non-bid contract worth $19.5 million to the National Kidney Foundation of Hawaii and its partners.

Copies of contracts and change-orders obtained by Hawaii News Now under the state’s Open Records Law show that the city paid a steep price — approximately $120 per test.

Ge Bai, a Johns Hopkins University accounting professor and an expert in healthcare pricing, estimated that it costs testing companies about $20 per test.

“That is an outrageous amount. At the beginning of the pandemic, the Medicare program determined that it’s gonna pay $51.33 for each test and that is already a very generous payment,” said Bai.

Bai is the co-author of studies investigating the high cost of COVID testing in Hawaii and concluded that the testing companies profited from the pandemic.

One report — published in the Wall Street Journal — looked at data from the Hawaii Tax Department and showed that between May 2020 and December 2020 revenues at the local testing companies grew at a compound rate of about 8% a month.

“Money eventually went to a very small number of companies ... enabling them to make windfall profits,” said Bai.

Defending his group’s pricing, Kidney Foundation of Hawaii CEO Glen Hayashida said competitors were charging more.

“That was lower than market rate at the time. Some companies were charging as high as $300 per test,” Hayashida said in an Aug. 8 email.

In a follow up email Friday, he further defended the Kidney Foundation’s testing work on behalf of the city.

“The National Kidney Foundation of Hawaii increased the state’s capacity for COVID-19 testing from an average of 5,000 tests per day to 15,000 during a critical stage of the pandemic. NKFH also made available over 1 million tests per week when test supply was limited across the world,” Hayashida said.

“The process developed by NKFH further reduced waiting time on test results providing a 12 hour or less window of reporting to patients instead of 2-3 days average at that time.”

Testing expert Dr. Scott Miscovich said the Kidney Foundation’s comparisons are skewed. He said local testing labs had to invest heavily to provide and expand their labs for mass COVID testing.

City contract records show that the Kidney Foundation and its partners didn’t have much set up and lab costs because the city paid more than $11 million of those start-up costs.

Miscovich called it a sweetheart deal and added the federal government should audit the Kidney Foundation’s contract.

“The biggest travesty of this is that massive profits went out the door to political insiders and people who had no business taking the state’s money or the federal government’s money,” said Miscovich.

Miscovich is referring to the Kidney Foundation’s politically-connected subcontractors.

One of them is H20 Process Systems, LLC.

The Kidney Foundation’s Form 990 filings with the Internal Revenue Service for its 2020 fiscal year shows that it paid H20 $241,000 to sanitize and handle hazardous waste for the airport lab.

H20 is headed by Milton Choy, the businessman who is accused of funneling more than $41,000 in bribes to former state. Sen. J. Kalani English and ex-state Rep. Ty Cullen.

Another subcontractor — Capture Diagnostics — is the target of a Hawaii Campaign Spending Commission investigation into alleged illegal political donations.

Earlier this month, Hawaii News Now reported that the commission subpoenaed the bank records of two Capture Diagnotics employees — former Department of Transportation official Wes Yonamine and a Capture Diagnostics project coordinator Jordan Kurokawa.

Kurokawa is the son of Gary Kurokawa, Caldwell’s former chief of staff who signed off on the airport testing contract.

The investigation is looking into whether Capture Diagnostics illegally reimbursed the two for their political donations.

Capture has denied that it repaid its employees for the donations, saying it didn’t violate state Campaign Spending laws.

Gary Kurokawa said his son’s contribution to the Caldwell campaign came from a joint account that he and Jordan Kurokawa share for their real estate appraisal business and not from Capture Diagnostics.

He added that he saw nothing wrong with his son working for Capture Diagnostics since the younger Kurokawa was hired by the company well after the city awarded the airport testing contract.

But Bai, the Johns Hopkins University professor, said that at the very least the contracts should have been put out to competitive bid.

Gary Kurokawa previously told Hawaii News Now that although the contract was awarded as an emergency procurement, the city did seek proposals, issued requests for proposals and received several inquiries.

Kurokawa added that the city largely selected the Kidney Foundation team because they were able to turn around COVID test results within 24 hours while some labs would have to send their tests to the mainland which could take days.

But some of the labs we spoke to said they weren’t given an opportunity to submit a formal bid despite having the capability of turning around results within 24 hours.

“In the end, it’s the taxpayer that pays,” said Bai. “It may be federal money but it’s ultimately the taxpayer that gets hurt.”