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The Honolulu Advertiser
Posted on: Thursday, January 9, 2003

Patients likely to pay more for fewer services

 •  Queen's deal announced
 •  St. Francis, nurses far from reaching deal

By Frank Cho
Advertiser Staff Writer

The state's largest hospitals are planning to ask consumers and their employers to foot the bill for millions of dollars in additional labor costs through increased hospital fees, higher insurance premiums and probably fewer services in the wake of contract settlements with Hawai'i's unionized nurses.

Sue Scheider and Bill Richter of the Hawai'i Nurses' Association, left, helped win considerable pay raises for nurses — which hospital executives say is likely to result in higher costs that will be passed on to patients.

Richard Ambo • The Honolulu Advertiser

While many nurses around O'ahu have won higher salaries — St. Francis Medical Center nurses continue to strike over them — hospital officials say there simply is not enough money to pay for all the pay raises.

That claim is a tough one to sort out, largely because hospitals get money in so many different ways. But experts say one thing is clear: consumers will bear the brunt of the increased labor costs.

"Whether it's in the automobile industry or the healthcare industry, it's the consumer that always ends up paying for wage increases," said Richard Meiers, president and chief executive officer of the Healthcare Association of Hawaii, a lobbying group that represents the state's hospital industry.

The contracts add another costly burden on Hawai'i's healthcare industry, which is mired deep in a fiscal quagmire. The industry's financial struggles go back several years and are national in scope. But hospital executives say the recent labor contracts will surely exasperate the industry's shaky financial footing.

Fueled by rising drug and labor costs, hospitals across the country have been frantically looking for ways to close the gap between runaway costs and falling reimbursements.

"I think you have to look at raising prices wherever possible. There is no magic formula here," said Larry O'Brien, chief executive officer of Kapi'olani Medical Center for Women & Children. "This is obviously very difficult for us. We anticipated some of this, but we did not anticipate all of it or the magnitude of it."

Kapi'olani Medical Center has to find $9 million over the next three years to pay for the increased pay and benefits recently won by its nurses at the bargaining table. But where that money will come from is not yet entirely clear.

In Hawai'i, as in most of the country, hospitals get their money primarily from three sources: the state, the federal government and insurance providers.

O'Brien said the hospitals will have to look at increasing efficiency to find more savings and increasing government reimbursements. He said capturing federal matching money could also stem the tide of red ink that some local hospitals face.

Much of the cost will be passed along to consumers through higher insurance premiums largely paid by employers.

"The cost of these (labor) settlements will eventually raise the cost of healthcare for the entire community," said Cliff Cisco, a spokesman for the Hawaii Medical Service Association, the state's biggest private health insurer.

Cisco said hospitals have been in discussions with HMSA over the past year on reimbursement levels in anticipation of the contract negotiations with the nurses union. And higher reimbursements will probably affect insurance premiums for more than 10,000 local businesses, covering roughly 600,000 HMSA members statewide.

"As we look forward, it will probably take another year or two for these things to work itself out," Cisco said.

The Balanced Budget Act in 1997 severely cut federal Medicare reimbursement rates to healthcare providers, costing Hawai'i hospitals nearly $500 million over the past five years, according to a recent study by Ernst & Young paid for by local hospitals.

Meiers said Hawai'i hospitals are planning to lobby hard at the state Legislature this year for higher reimbursement rates from the state's Medicaid program. The industry is also planning to reopen negotiations with private health insurers to seek increased reimbursements.

"Unfortunately, a lot of politicians believe that hospitals still make too much money," said Terry Long, chief financial officer for St. Francis Medical Center, which is trying to settle with nearly 400 striking nurses.

St. Francis lost $29 million in 2001, the last year figures were available.

"Hospitals, especially here in Hawai'i, are really struggling financially. It has gotten to the point where we have cut our infrastructure costs as much as we can and are going to have to start looking at programs," Long said.

Nurses, however, said the hospitals have been trying to fix their fiscal problems for years on the backs of employees by increasing workloads and effectively reducing wages.

"We understand the problem the hospitals are having with declining Medicare reimbursement levels," said Scott Foster, a spokesman for the Hawai'i Nurses' Association. "Those highly paid hospital executives need to get their butts to Washington and straighten this thing out at that point and stop trying to make the nurses pay for it. It's not the nurses' problem."

Representatives of The Queen's Medical Center and Kuakini Medical Center declined to comment yesterday. Both hospitals this week reached tentative agreements with the nurses' union. Ratification votes are pending.

If efforts to sufficiently reduce costs fail, some hospitals said they are considering ending or restricting access to some money-losing services. Hospital officials say it is too early to identify what services would likely be cut.

"Our hands are tied somewhat as to how much we can increase prices," Long said. Nurses' union officials had proposed a contract to St. Francis that would have raised costs at the financial struggling hospital by $6 million over three years, a 10 percent increase. The hospital offered a one-year package that would have increased expenses just $1 million with the option to negotiate the final two years at a later date. That offer was rejected by the nurses.

"Ultimately, this means that taxpayers will pay for the increased labor costs," Long said. "We will be going to HMSA as well as other insurers to try to increase their payments to us because we anticipate a large increase in our expenses."

Long said fees on some services like private rooms will also have to be increased to pay not only higher salaries for nurses, but for the overall increased cost of hospital operations, pharmaceuticals and medical supplies.

"With the labor settlements that are coming through right now, this thing is going to ripple through the whole economy of this state," Long said.

Reach Frank Cho at 525-8088 or at fcho@honoluluadvertiser.com.