Healthcare merger will not cost jobs
By Katherine Nichols
Advertiser Staff Writer
The merger of Kapiolani Health, Straub Clinic & Hospital and Wilcox Health System closed this week, creating one of the state's largest healthcare organizations.
The newly merged, nonprofit Hawaii Pacific Health brings together four hospitals, 23 clinics, 30 community outreach programs and more than 4,700 employees.
The state Health Planning and Development Agency approved the merger of Straub Clinic & Hospital, Kapiolani Medical Center for Women and Children, Kapiolani Medical Center at Pali Momi and Wilcox Memorial Hospital on Kaua'i in October.
A federal antitrust review and final document signings completed the deal. All three entities will retain their identities under the new umbrella organization.
Roger Drue, president and chief executive of Kapiolani Health and the catalyst of the deal, leads the new system as president and chief executive. Jack Tsui is the new company's chairman.
Yesterday, officials said there will be no closing of Wilcox, Straub or Kapiolani facilities or programs as a result of the merger. Officials also said there will be no layoffs and few job changes for the majority of employees.
Officials said consolidation of many administrative functions already has been completed.
The move comes as hospitals across the country struggle to find ways to cut costs amid growing pressure from lower Medicare and Medicaid reimbursements, rising drug costs and mounting bad debt from uninsured patients.
According to an Ernst & Young study commissioned by the Healthcare Association of Hawaii, costs for bad debt and charity care at Hawai'i hospitals and nursing facilities were projected to nearly double from $52 million in 1998 to $93 million next year.
Drue comes to the company with experience in mergers. In 1993, Drue spearheaded a merger between Encino Hospital and Tarzana Regional Medical Center in southern California. The goal was to help the two entities draw on each other's strengths while reducing costs through consolidation. In that merger, 50 to 60 beds initially were eliminated and 125 jobs were lost.
"(The Hawai'i merger) is occurring to become more efficient, but we'll see if it has a positive or negative impact on taking care of folks," said Tyler Erickson, an administrator at Wahiawa General Hospital. "Some mergers are breaking apart today because they didn't do what they said they would do."
Not all hospital mergers around the country have worked. After two years, for example, a merger of the University of California, San Francisco, and Stanford University facilities unraveled in 1999 after continued losses.
Reasons cited for the failure included faculty resistance, finely drawn political battlefields and an uncontrolled escalation of costs. Unlike the Tarzana deal, the UCSF Stanford Health Care system's payroll swelled by 900 employees. The expense of integrating the computer systems soared from the original estimate of $25 million to $126 million.
Experts had said the system would make $65 million in its first two years. Instead, it reported a net loss of $43 million. Setting up the merger cost both institutions $79 million.
"It was simply too complex to do a merger of equals," said Dr. Bruce Wintroub, former chief medical officer for UCSF Stanford Health Care. "The business plan was overly ambitious, unrealistic and fatally flawed. And it was badly executed."
Still, some mergers remain successful. Eight years later, the Encino/Tarzana deal has been considered a financial success, according to Gary Hopkins, spokesman for Tenet Healthcare Corp. in California, which runs the hospital.
Advantages of the UCSF/Stanford merger included an ability to negotiate better rates with contractors.
In the case of Hawaii Pacific Health, Rich Meiers, president and chief executive officer of the Healthcare Association of Hawaii, said the facilities might save money by purchasing pharmaceuticals in bulk. Also, instead of providing the same diagnostic centers and treatments at all facilities, each could concentrate on treating a certain disease.
Another possible benefit is that Wilcox, which is in Lihu'e, might be able to avoid sending patients to O'ahu for treatment. Instead, said Meiers, Kapiolani could purchase plane tickets for physicians and send them to Kaua'i for clinics three days a week, saving the patient time and expense and providing better care in the process.
Even as administrative tasks, like billing and collections, are altered and streamlined, insurance providers do not anticipate changes for their subscribers.
"We have a good working relationship with all three institutions, so we see it in a positive light," said Cliff Cisco, senior vice president of HMSA. "We have confidence that it will work as it relates to HMSA members receiving their benefits. We really don't see any change."
Meiers warned that the future of Hawai'i's hospital industry cannot necessarily be compared with California's, where hospitals have closed.
There, hospital occupancy rates have traditionally been lower because of overbuilding.
"Every merger is a different story," said Meiers. Hospitals that closed in California and Washington had occupancy rates of around 50 percent. "We have not historically been way overbedded in Hawai'i."
According to data from the Hawai'i Health Planning and Development Agency utilization report, the total acute-care occupancy rate on O'ahu was 67.9 percent in 2000. In pediatrics, it was 82.6 percent, and it was 90.1 percent for long-term care.
Still, some in the industry remain concerned.
"I don't think any hospitals in Hawai'i are doing OK," said Wahiawa's Erickson. "We are trying to do what we can with the resources that we have."
