Things may go from bad to worse for Hawai'i's financially ailing hospital sector this year as the economy and rising costs take a toll on its bottom line.

Hospital executives who gathered yesterday for a Healthcare Association of Hawaii meeting learned the industry had operating losses of $150 million last year and that things may worsen in the future.

"This has been sort of a tough year and it looks like we're headed into tougher times," said Richard Meiers, head of the association.

"We've got a lot of challenges ahead of us."

Hawai'i's hospitals have been struggling, primarily because patient payments from Medicare, Medicaid and the state's Quest program don't cover the costs of providing service. During the past year Hawaii Medical Center, which operates two former St. Francis hospitals on O'ahu, filed for bankruptcy and cut the number of beds it offers, while Kahuku Hospital needed to be saved from closing by the state's Hawai'i Health Systems Corp.

Hawai'i Health Systems also has had to request millions in emergency funding to help keep its network of public hospitals operating smoothly, while North Hawaii Community Hospital had to lay off 12.6 percent of staff because of financial problems. Kona Community Hospital laid off 10 percent of its workers.

A report prepared by Ernst & Young LLP for the Healthcare Association — a group that includes hospitals, nursing homes, home healthcare providers and hospice providers — was released yesterday and shows hospitals as a group have sustained operating losses for eight consecutive years.

Reimbursements from Medicare, which represents about one-third of Hawai'i patient charges, only covered 77 percent of costs. Medicaid/Quest payments covered about 71 percent of costs.

Payments from private insurers such as the Hawaii Medical Service Association cover slightly more than expenses, but it is not enough to make up for losses produced in providing medical services to Medicare and Medicaid/Quest patients.

"The payments that are coming in are still not covering costs," said Terri Fujii, Ernst & Young managing partner.

"On an operating basis the hospitals still have losses."

She said last year's operating loss would have been greater if some hospitals had not negotiated higher payments from private insurers.

ACUTE-CARE BEDS

Then there are other expenses that contribute to the operating losses, including patients residing in acute-care hospital beds because the state's shortage of long-term care beds means they can't be transferred from hospitals.

The report said Medicare doesn't allow additional payments to hospitals for additional days spent by patients waiting for long-term-care placement, while Medicaid — about 12 percent of patients — only covers a fifth to one-third of the additional wait-listed days.

Uncompensated costs for wait-listed patients totaled $60 million last year. In the past fiscal year the estimated number of wait-listed patient days has risen 15 percent to 70,270.

Hospitals also racked up $143.8 million in charity care and bad debt in 2007.

It's this last category that may balloon in coming months as more people lose jobs and medical insurance coverage because of the state's poor economy. University of Hawai'i Economist Carl Bonham yesterday told the hospital executives the state and nation are in a recession. He is still working on a fourth-quarter forecast, but the work-in-progress currently projects Hawai'i job losses will accelerate next year and personal income adjusted for inflation will decline.

Bonham said recession may show up in homeless numbers, increased stress and people cutting back on doctor's visits as they try to make ends meet.

"You're going to have more people walking into your emergency rooms that are uninsured," Ernst & Young's Fujii told hospital executives. She said some hospitals have been able to turn a net profit in past years once investment income is added in.

But recent turmoil in financial markets may mean that this safety net cannot be relied upon in the near term.

"We're in that perfect storm right now," Fujii said.

LITANY OF WOES

Her report noted the worsening financial situation has resulted in reductions in access to care and services and more difficulty in getting financing for new equipment along with reduced ability to attract and retain staff.

It said hospitals are trying to control costs by discontinuing or selling unprofitable service lines and reducing administrative space and staff. They've also put off needed maintenance to facilities and looked for ways to save on electricity while prices rose.

"There really isn't a silver bullet to this," said Art Ushijima, president and chief executive officer of The Queen's Medical Center, the state's largest private hospital with 505 acute-care beds.

"It clearly doesn't look like it's going to get any better."

He said the industry needs to continue to work to find ways to collaborate on minimizing costs and reducing duplication of services. At the same time it needs to grind out the downturn by finding ways to cut costs or boost efficiency.

Meiers said the problems are well known in terms of skimpy government reimbursements and the number of uninsured patients. He said the industry may need more ingenuity in how it provides services.

But while the short-term outlook is uncertain, Ushijima said he believes the industry still has an optimistic outlook in the long-term.

"We'll weather the downturn," he said.