Audit criticizes hospital spending
By Lynda Arakawa
Advertiser Capitol Bureau
The organization that runs Hawai'i's community hospitals lacks adequate oversight on its procurement and contracts and may be wasting millions of taxpayer dollars, the state auditor said in a report released yesterday.
The Hawai'i Health Systems Corporation's control of its procurement and contracts has worsened in the last three years, state auditor Marion Higa said. The audit said that while the policies of HHSC — a quasi-public entity — allow officials to bypass bid requirements in awarding contracts under certain circumstances, it has increasingly done so and has repeatedly failed to adequately justify such contracts.
For example, the audit said, a decision to bypass bid requirements for a $40 million contract for laboratory services lacked justification. Higa also said HHSC is paying more for contracts than necessary. For example, documents for a $195,000 contract indicated the same service was available for a lower cost, but that the corporation chose the higher-cost service. The contract was for reviewing records for unbilled services.
The corporation also waived potential conflicts of interest in awarding a $50,000 contract for legal services with a law firm whose partner was going to serve as a director on the HHSC board, the audit said.
"In several contract files, we found that the corporation's procurement staff had raised legitimate concerns that policies were being violated and overridden by management," Higa said. "The corporation's lax control environment allowed top management to ignore established policies, such as requiring justification of contract awards, legal review of contracts, and tax clearances for contractors."
The study also found weaknesses in billings and collections from patients and a lack of control over bills it receives from others.
HHSC president and chief executive officer Thomas Driskill responded that the corporation will take the audit recommendations into account, and that it has saved the state $130 million over the past four years while increasing cash collections over 25 percent.
The audit also found that the corporation is managing its information systems more effectively and that planning, organization and staffing have improved. The corporation has also taken steps to reduce health-care costs through technology such as its video teleconferencing system.
Hawai'i Health Systems Corp. took over management, assets and property rights of the state's community hospital system from the state Department of Health in 1996. The corporation, which was created by the Legislature, oversees 12 acute-care, long-term-care and rural community hospitals with 1,200 beds and 3,000 state employees.
In his written response to the audit, Driskill said, "Although HHSC's procurement and contracting control can be improved in many ways as appropriately pointed out by the audit, nonetheless, HHSC has received national recognition in health-care procurement twice in the past five years (most recently in April 2002)."
Driskill said the audit "may reflect a bias toward standard government procurement practices that would be inconsistent with sound business practices" and that HHSC must balance a "time equals money" policy with rigid procurement compliance to survive.
Driskill also said the $40 million laboratories contract criticized in the audit was initially awarded in 1997 after an extensive bidding process that ultimately saved HHSC $10 million to $15 million a year and that it was the extension of the contract that was done without bidding.
The report is available online.
Advertiser staff writer James Gonser contributed to this report.
