Hawaii Health Systems Corp. $7.2M in the red

Kona Community Hospital will account for nearly $1 million of the state hospital system’s $7.2 million shortfall forecast for the coming fiscal year.

That will likely mean cuts to services or even layoffs in West Hawaii if the state doesn’t provide emergency funding, administrators said Wednesday.

“Let me tell you, there’s a financial crisis with HHSC (Hawaii Health Systems Corp.). Unquestionably. Our board, and the other HHSC region boards, are very, very, very concerned about how we’re going to be able to operate going forward,” said Howard Ainsley, CEO of HHSC’s East Hawaii Region, which includes Hilo Medical Center, Ka‘u Hospital, and Hale Hoola Hamakua. “Some hospitals are going to have difficulties making payroll unless emergency appropriations are made to these regions.”

By the end of the current fiscal year, Hawaii’s “safety net” hospital system is looking at a $1.2 million deficit, said Avery Chumbley, Chairman of HHSC’s Corporate Board.

“But that’s spread across all 13 hospitals in the system, and that’s fairly minor compared to Fiscal Year 2014,” he said.

With payroll costs expected to top $19.2 million next year, he said — including employee fringe benefits that will increase across the board as a result of recently complete collective bargaining — the state appropriated at the end of the Legislative Session last month only $12 million for those expenses.

“If we’re going to be expected to cover it just out of operations, the financial situation we face becomes even more grave,” Chumbley said.

Hilo Medical Center is predicted to see a deficit of $1.9 million by the end of FY2014, he said. Ka‘u hospital will come up $69,000 short, and Hamakua is expected to run a deficit of $147,000.

Kona Community Hospital’s shortfall will be just under $1 million.

Meanwhile, the hospital system is contending with ever-increasing health care costs and dwindling reimbursements from Medicare and Medicaid. Add to that the changes to reimbursements that will go into effect in 2014 due to the Patient Protection and Affordable Care Act, also known as Obamaare, and Hawaii’s hospitals are facing a perfect storm, Ainsley said.

“This is the largest tax law and social policy change in a generation, and it will be imposed on a skeptical public by a government agency (the Internal Revenue Service) whose credibility most recently has been questioned,” he said. “The board has agreed, as have the Maui and West Hawaii boards, to put together some community forums to educate the community on the financial crisis — why our expenses are what they are, and what’s happening with revenue reductions.”

On Wednesday, the HHSC Corporate Board’s Finance and Information Systems Committee will meet to discuss new forecasts of the facilities’ Fiscal Year 2014 budgets, which are currently being revised, Chumbley said.

“We’ll see how the numbers fall out, into our single (systemwide) budget, and then, the next step will be to make some tough decisions,” he said.

If the state isn’t able to provide emergency funding, he said, HHSC will have to consider the possibility of reductions in services, or even “the hard one — reductions in force, which means layoffs,” he said.

HHSC has worked to increase efficiencies as it has watched its state subsidies decline over the past several years, Ainsley explained.

“The operating fund has declined from $98 million in 2010 to $82 million in 2011, to $73.4 million in 2012,” he said. “Our net losses are going up.”

In an effort to combat such losses, HHSC has pursued the possibility of partnering with a private company to take over operations of some or all of its facilities. Last summer, it began talks with Phoenix, Ariz.-based Banner Health Systems.

During the past Legislative Session, a number of bills were introduced that would have cleared the way for HHSC to enter into such a partnership, but none were approved.