HMSA, four hospitals, in groundbreaking agreement

HONOLULU (HawaiiNewsNow) - The operator of four Hawaii hospitals has agreed to allow more than half of its compensation increases be tied to performance standards, starting in two years.

The five-year agreement, announced Thursday morning, is by Hawaii Medical Service Association, the state Blue Cross provider and the largest health insurer in the islands, and Hawaii Pacific Health, which operates the Kapiolani, Straub, Pali Momi and Wilcox hospitals.

"A new era in our relationship with HMSA," said Hawaii Pacific Health CEO Chuck Sted.

The 2014 agreement, which goes beyond performance standards in contracts with other hospitals, represents a new economic model. If it works according to plan, health care should improve, patients will have more access to it, and the price should rise more slowly.

"This is essential to create a more sustainable health care system," said HMSA CEO Bob Hiam.

The prevailing model for hospital compensation, never seriously challenged until recent years, was to pay hospitals for services rendered: every doctor visit, every operation, every drug prescribed, every test conducted. But as doctors prescribed more pills and ordered more tests, and as medical costs soared at several times the overall rate of inflation, hospital administrators and insurance executives alike began rethinking the model.

The new thinking is that preventive care is cheaper than treating sickness, clinic care is cheaper than hospital visits, and both improve patient health.

The tricky part has been negotiating financial incentives practicably, and HMSA has been in talks with Hawaii hospitals for years. Queen's Medical Center, Hawaii Pacific Health and Kaiser Permanente have adopted new models focused more on patient outcomes, but Sted and Hiam said the new agreement goes beyond what has been agreed to before now.

"The agreement raises the bar higher for both HMSA and Hawai'i Pacific Health. Performance standards will become more rigorous and there will be increased reporting on patient health. While the process will have its challenges, in the end we will become more than a health plan and a health care system: we will be allies in improving the well-being of our members and patients," Hiam said in a statement.

A joint news release by the two enterprises said, "Hawai'i Pacific Health and HMSA believe so firmly in this new model of care that they have agreed to share the savings it will create or share losses if they are unsuccessful."