Hospitals shifting to nonprofit status
BY Greg Wiles
Advertiser Staff Writer
Hawaii Medical Center, operator of hospitals in Liliha and 'Ewa, hopes to start rebuilding and enhancing its operations as it closes a disastrous chapter of its history.
Creditors yesterday won approval of a blueprint for the state's only for-profit operator of hospitals to exit bankruptcy. Judge Robert Faris said he would accept the plan forged after a 22-month long battle that pitted creditors, owners and former owners against each other.
"I'm really pleased we got here," Faris said.
Faris' confirmation of the plan will end a troubled financial period for the former St. Francis Medical Center hospitals. The problems began when HMC bought the hospitals in January 2007, using $40 million loaned by the seller, Saint Francis Healthcare System of Hawaii.
Under HMC, a limited liability company primarily owned by Kansas-based Cardiovascular Hospitals of America and more than 130 local physicians, losses escalated despite promises to redevelop the operations as a world-class medical center.
In August 2008, HMC filed for Chapter 11 bankruptcy after running up $21.8 million of operating losses.
The plan approved yesterday was reached after extensive discussions with attorneys for the creditors and Saint Francis, which agreed to support the plan and suspend its pursuit of a separate plan it had proposed.
The plan calls for stripping HMC of ownership and converting the hospitals to nonprofits. A nine-member board is to oversee operations, while the $40 million loan owed Saint Francis Healthcare is repaid over a seven-year period.
St. Francis is also to receive a $6.4 million payment when the hospitals exit bankruptcy on July 1 along with three seats on the board. Debt owed unsecured creditors will be repaid over a longer period.
"We think it's the best thing for the community," said Jerry Correa Jr., Saint Francis Healthcare's chief administrator. "It's going to be a locally run hospital."
The plan hinges on obtaining bankruptcy exit financing of $10 million to $12 million, according to Salim Hasham, HMC chief operations and restructuring officer.
Meanwhile, cost cuts and other changes at the hospitals have resulted in their operations generating enough cash to cover obligations, Hasham said.
Conversion to nonprofit status will free up between $5 million and $6 million now paid in general excise tax, corporate tax and some property tax, he said.
As nonprofits, the hospitals can also seek donations to help pay for new equipment or expanded charity care.
Hasham hopes to expand the hospitals' operations over the next two years. He said about 50 percent of the acute care beds at the 240-bed Liliha hospital are currently occupied, while, on average, about 60 at the 102-bed 'Ewa location are in use.
At the Liliha campus, Hasham said, he hopes to build on HMC-East's reputation for specialties such as the state's only transplant center, a liver center and a thoracic tumor clinic. HMC-East was the site of Hawai'i's first heart transplant.
"We have to continue to do what we are very, very good at," Hasham said, noting that HMC recently receive an outstanding achievement award from the Commission on Cancer of the American College of Surgeons.
Additionally, Hasham hopes to increase outpatient surgical procedures such as hernia operations and is considering whether some of its acute-care bed capacity should instead be used for skilled nursing or long-term care.
He said HMC also is participating in a "re-visioning" of the Liliha campus by landowner St. Francis Healthcare, which also owns a parking structure and medical office building on the property.
At HMC-West in 'Ewa, there are plans to expand the emergency room space by 10 to 15 percent and add specialized services, such as a cardiac catheterization lab and more imaging services.
Hasham said the hospital has the second-busiest emergency room on O'ahu, serving up to 90 patients a day. The growing population in Leeward O'ahu also needs more medical services available to them, he said.
"The focus will clearly be on building capacity on the west end," Hasham said.
He said the improvements should be seen over the next two years.
Saint Francis Healthcare, which now focuses on providing long-term health services, said it was happy with the conclusion of the case.
"We want the hospitals to succeed," Correa said.