The state's community hospital system is seeking an emergency $25.4 million cash infusion from the Legislature, saying its ability to pay suppliers has reached a crisis point.

Hawaii Health Systems Corp., operator of the biggest hospitals on the Big Island and Maui, told lawmakers yesterday that its finances are so tight that it must keep a strict watch over cash and bills to make sure the most critical payments are made first. The situation is such that at one point, its Hilo Medical Center was one day away from being cut off by a medicine supplier because bills had not been paid.

"We have a very tight cash flow situation right now," said Thomas Driskill Jr., corporation president and chief executive. "This is not a good way to run a hospital system at all."

The urgent request is the latest one by the public-benefit corporation that runs a dozen Neighbor Island and rural hospitals. The corporation is the fourth-largest public hospital system in the United States and is the largest provider of healthcare for Neighbor Island residents. It is in the process of assuming the Kahuku Medical Center and is the largest provider of emergency services and long-term care in the state.

The system's accounts payable and accrued liabilities total $56.8 million, with the emergency request needed to work down that amount. While there is always the possibility that vendors could threaten to withhold services and supplies, they and the Legislature, state administration and others have always worked to maintain the hospital service, Driskill said.

The hospitals have been battered by rising costs and inadequate reimbursements. A recent Healthcare Association of Hawaii study found Medicare, Medicaid, Quest and private-insurer payments to hospitals only covered 92 percent of patient costs, while the national average was 104 percent.

The study found Hawai'i hospital costs exceeded payments by $150 million in 2006. Driskill said losses are occurring for his facilities.

"The cash deficit to get accounts payable to an acceptable 30-days level is $25.4 million," according to testimony submitted by Driskill.

"If this level of support is not forthcoming, then HHSC hospitals will be put in jeopardy of being closed by vendors whom we cannot pay."

He said problems include not getting enough in federal payments that go to large safety-net hospitals such as the ones in Hilo, Kona and Maui that the corporation operates. The low level of Medicare and Medicaid reimbursements is a problem, as is Hawai'i's shortage of long-term care beds.

REIMBURSEMENT ISSUE

On any given day, corporation hospitals have up to 100 patients in acute-care beds who should be in long-term care facilities. Hospitals are reimbursed at a lower rate for long-term care patients, who at the same time are occupying beds that could be used by higher-reimbursed acute-care patients, Driskill said.

Annually, he said, that means $30 million to $50 million in cost and lost revenue opportunities for the hospitals because of the state's long-term care crisis.

Driskill said the corporation wants to get through the current cash crunch to work on longer-term solutions to its problems.

He said recent changes in the corporation's management structure to create five regional boards is getting more community members involved.

They are now working with the healthcare, administrative and legislative personnel already trying to solve healthcare problems in the state, including trying to solve the growing need for more services and physicians on the Neighbor Islands.

One positive note occurred this week when the corporation got a letter of commitment for as much as $130 million in financing to help with growing expenses and demands on Maui. Driskill said that could help cut into the accounts payable problem.

"We've had cash flow problems in the past," he said. The vendors and others have "always stood by us in the past, and we'll get past this situation."

Reach Greg Wiles at gwiles@honoluluadvertiser.com.