Hawaii a case study in how government can make basic healthcare a nightmare

by Kelii Akina, The Hill, July 14, 2017

With politicians debating the future of the federal Affordable Care Act, it may be helpful to take a step back and consider the role of government in health care generally.

We’ve become accustomed to hearing about the benefits of heavy government involvement in health care on the national scale. But there’s also a benefit to looking at much smaller examples, such as the system of government-run hospitals in Hawaii.

Long in a state of financial and managerial crisis, the state-owned hospitals were intended to serve low-income residents and people in the rural areas throughout the islands, but all of the good intentions in the world were unable to transform Hawaii’s government hospital system into a shining example for other states. Instead, it became a cautionary tale.

On the island of Maui, for example, the state-run Maui Memorial Hospital faced every problem a medical facility could. Dogged by consistently low professional accreditation ratings, it lacked specialists and had constant funding shortfalls. Patients regularly had to be airlifted to Honolulu, even for trauma care.

Maui residents told horror stories about finding no beds available while in the middle of a medical emergency. There were complaints about out-of-date equipment, management issues, overcrowding, a lack of basic supplies, mold, and simply the overall conditions at the hospital.

But when a new acute-care facility was proposed in 2006 to help alleviate some of the problems, the Hawaii State Health Planning and Development Agency blocked the opening of the new hospital, bowing to claims that competition from a new hospital would force Maui Memorial to close.

Then there was the cost of operating the hospital. By 2014, Maui Memorial was operating at a $43 million loss annually. A significant portion of those expenses was due to the state’s extremely friendly position with organized labor. State employees working for Maui hospital generally made twice as much in fringe benefits as comparable private sector employees. At the same time, those generous compensation and pension plans burdened the state with billions in unfunded liabilities, and the hospital system was one of the first sectors to show the strain.

Fed up with the situation, Maui residents banded together to support the creation of a partnership between the state and Kaiser Permanente Hawaii, a statewide private organization that has 50,000 members and a half-dozen medical facilities of its own on Maui.

No one could deny that Maui Memorial was not meeting the needs of the island, but a political fight still loomed. The state employee’s union, determined to secure all of the costly benefits it had accrued (and which some claimed helped doom the hospital in the first place), fought the transition in the state legislature and the courts.

Determined to secure union benefits for all hospital employees after the transition, the union lobbied the legislature — and succeeded, during a special session called expressly for that purpose.

That package, however, later was dropped after the state Employee Retirement System sued the union, alleging the deal threatened the tax status of the state employee pension fund, and the IRS rendered a concurring opinion letter. In the meantime, the ownership transition was delayed, and Maui residents continued to put up with insufficient facilities while the political disputes went on.

Now, about a year after originally scheduled, Kaiser Permanente has taken control of the medical facilities on Maui formerly owned by the state, and residents are hopeful that the days of substandard care are finished.

So far, the news coming from Maui has been good. Kaiser announced the hiring of new specialists, and promised that fewer patients will be referred to Honolulu for care.

Large-scale hiring suggests that the management and paperwork issues are a thing of the past. Policymakers are optimistic that the public-private partnership model may be able to save not only the state hospital system but other overstressed government services as well.

This is good news, and promising for the future, but it’s important to remember that it took a crisis to push Hawaii policymakers into trying it.

For years — despite the best intentions of its administrators — the government-run hospital failed to meet even the most basic needs of the community. It was expensive; it was inadequate; and while no one complained about the dedication of the doctors and nurses, it had problems at the management and operations levels.

In short, the problems came not from the people, but from the top. And its well-meaning bureaucratic administrators simply lacked the capability, or proper incentives, to manage it as efficiently and effectively as entrepreneurial private managers could.

It may be tempting to believe that government can provide the blueprint for a better national health care system. But in reality, when government tries to manage delivery and access to medical care, the results are anything but healthy.

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Keli’i Akina, Ph.D. is the president and CEO of the Grassroot Institute of Hawaii (@GrassrootHawaii), a public policy think tank dedicated to the principles of individual liberty, free markets and limited, accountable government.